UK’s struggling economy could be jammed into a two-year recession: IMF

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International Monetary Fund warned that UK’s already struggling economy would be thrust into a two-year recession by a no-deal Brexit.

A no-deal Brexit could see both Britain and the EU slide into a two-year recession in a worst-case scenario according to IMF.

Gita Gopinath, director of the research department at the IMF  Said that “Growth in systemic economies such as the euro area and China may surprise on the downside, and the risks surrounding Brexit remain heightened. A deterioration in market sentiment could rapidly tighten financing conditions in an environment of large private and public sector debt in many countries, including sovereign-bank ‘doom loop’ risks.”

she added that “While the global economy continues to grow at a reasonable rate and a global recession is not in the baseline projections, there are many downside risks. Tensions in trade policy could flare up again and play out in other areas, such as the auto industry, with large disruptions to global supply chains.”

The UK economy will grow by less than previously thought even with a deal, the Washington-based organisation predicted, as it slashed its growth forecasts for all of the world’s advanced economies amid a global slowdown.

A no-deal outcome that led to severe border disruptions and a quick erection of tariffs would cause UK GDP to fall by 1.4 per cent and 0.8 per cent in the first and second years, according to the organisation. The EU’s GDP would be 0.2 per cent and 0.1 per cent lower in such a scenario.

The IMF said a no-deal outcome would have a total negative effect on UK GDP of 3.5 per cent by 2021 compared to the current projection.

The IMF’s report said the economy would suffer as trade tariffs rose and non-tariff costs involved with customs and regulations also increased, including higher costs for the UK financial sector.

UK GDP is set to expand 1.2 per cent in 2019 should it leave the EU with a deal, 0.3 percentage points less than the IMF predicted in January as Brexit uncertainty and a global slowdown weigh on the country’s prospects.

In more bad news for Europe’s biggest economy, the IMF said Germany will now grow just 0.8 per cent in 2019, meaning the organisation has cut its growth prediction for the country by over half since October in two consecutive downgrades.

Last week Germany’s manufacturing sector was shown to have sharply contracted in March, while on Monday it was revealed that imports and exports were both lower than expected.

Italy will be the slowest-growing advanced economy in 2019, the IMF said, achieving feeble growth of 0.1 per cent. Meanwhile US GDP will grow 2.3 per cent in 2019, 0.2 percentage points lower than the IMF’s January report foresaw.

 

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