Brexit vote worsens global economic outlook

The Britain’s decision to exit the European Union (EU), has further depressed the global economic outlook in the years ahead, the International Monetary Fund (IMF), has said.

The global financial institution said in a publication due for release today, that the outcome of the U.K. vote, which outcome it stated came as a surprise to the global financial markets, implies the materialisation  of an important downside risk for the world economy, saying as a result, “the global outlook for 2016-17 has worsened, despite the better-than-expected performance in early 2016. 

This deterioration reflects the expected macroeconomic consequences of a sizable increase in uncertainty, including on the political front. This uncertainty is projected to take a toll on confidence and investment, including through its repercussions on financial conditions and market sentiment more generally.”

The IMF said the initial financial market reaction, expectedly “ was severe but generally orderly,” stating that  as of mid-July, the pound in response to the unexpected development, “weakened by about 10 percent. “ It said despite some rebound, equity prices stayed lower in some sectors, especially for European banks; and yields on safe assets have declined.

However, before the June 23 vote in the United Kingdom in favor of leaving the European Union, economic  data and financial market developments suggested that the global economy was evolving broadly according to forecast in the first month of the second quarter of the year, the IMF said in its  World Economic Outlook (WEO).

It said growth in most advanced economies remained lacklustre, with low potential growth and a gradual closing of output gaps, pointing out that prospects remained diverse across emerging markets and developing economies, with some improvement for a few large emerging markets, amongst which were Brazil and Russia, indicating a modest upward revision to 2017 global growth relative to the April’s 2016 forecast.

The IMF said  with “Brexit” still very much unfolding coupled with  its unpredictable outcome, the extent of uncertainty complicates the already difficult  task of macroeconomic forecasting.