The IMF said prolonged uncertainty about Brexit would likely offset the NHS spending boost announced by the government in October
The IMF said prolonged uncertainty about Brexit would likely offset the NHS spending boost announced by the government in October © FT montage

The IMF said that a no-deal Brexit was a “potential trigger” for a global economic slowdown, adding that it was reluctant to make any economic forecasts for the UK.

In the latest update to its World Economic Outlook, the IMF left its UK economic growth forecast for 2019 unchanged at 1.5 per cent, but said there was “substantial uncertainty” around this prediction.

It said a “range of triggers beyond escalating trade tensions could spark a further deterioration in risk sentiment with adverse growth implications”.

“These potential triggers include a no-deal withdrawal of the United Kingdom from the European Union and a greater-than-envisaged slowdown in China.”

The update said the spending boost to the National Health Service in the October Budget was likely to be offset by “prolonged uncertainty about the Brexit outcome” and if there was a no-deal outcome in March, it had the potential to be disruptive.

Gita Gopinath, the IMF’s new chief economist, said Brexit was a “cliffhanger” and had the potential to have nasty spillovers both for the UK and other European countries.

The twice-yearly IMF outlook said the global economy was weakening faster than expected, with risks increasing from trade wars and financial markets volatility.

Coming at the start of this year’s World Economic Forum in Davos, the fund revised down its main economic forecasts for the world economy, saying it was likely to slow from 3.7 per cent growth in 2018, to 3.5 per cent in 2019 and 3.6 per cent in 2020.

The new estimates are 0.2 percentage points and 0.1 percentage point respectively below the IMF’s last forecasts in October.

In just three months, these represent a significant shift for the global economic outlook and comes as a result of weak data in Europe and Asia last autumn coupled with growing fears for the future.


The report paints a fragile picture of the world economy at a time when leaders have become more focused on domestic matters; it calls for greater international co-operation to give business more confidence to invest in the future.

“The cyclical forces that propelled broad-based global growth since the second half of 2017 may be weakening somewhat faster than we expected in October,” said Ms Gopinath.

“While this does not mean we are staring at a major downturn — it is important to take stock of the many rising risks.”

She noted that financial market turbulence was highlighting the risks from global trade tensions, which have created much uncertainty for business around the world. Investment has suffered and there are threats to global supply chains.

One of the specific risks highlighted by the IMF was that of a no-deal Brexit in coming months, which it said was a “rising possibility” and could have negative effects across Europe.

As China reported its weakest growth since 1990, the IMF predicted that the slowdown could be steeper than currently expected, which Ms Gopinath said could “trigger abrupt sell-offs in financial and commodity markets as was the case in 2015-16”.

The fund also expressed concern about Italy’s budgetary position where the government also has to deal with its weak banks. “A protracted period of elevated [Italian bond] yields would put further stress on Italian banks, weigh on economic activity, and worsen debt dynamics,” the IMF said in the report.

The IMF called on countries to resolve their trade tensions and for a smooth Brexit, all of which are more difficult because the US and UK administrations have not turned up in force to the Swiss ski resort of Davos because of mounting domestic crises.

“The main policy priority is for countries to resolve cooperatively and quickly their trade disagreements and the resulting policy uncertainty, rather than raising harmful barriers further and destabilising an already slowing global economy,” said Ms Gopinath.

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