The International Monetary Fund has cut its forecast for UK economic growth next year as it warned that the global recovery remains “weak and precarious”.
Its assumptions are based on “smooth post-Brexit negotiations and a limited increase in economic barriers”.
The IMF’s latest World Economic Outlook predicts “subpar” global growth this year of 3.1%, rising slightly in 2017.
Chief economist Maurice Obstfeld said: “Taken as a whole, the world economy has moved sideways. Without determined policy action to support economic activity over the short and longer terms, sub-par growth at recent levels risks perpetuating itself.”
A fall in US growth this year to 1.6%, down from the previous 2.2% forecast, will be offset by increases in countries including Japan, Germany and Russia and India, the IMF said.
Economists for Brexit, a group of eight influential economists which supported the Leave campaign ahead of the EU referendum, criticised the IMF’s forecasts arguing their pre-Brexit forecasts had already been proven wrong.
“The IMF, together with countless other institutions, forecasted a state of Armageddon which hasn’t even come close to materialising in the UK,” said Graeme Leach, member of Economists for Brexit and chief executive of Macronomics.
He added: “The UK economy seems to be strengthening, not weakening. Just today, construction PMI was positive, ahead of many gloomy forecasts.
“Consumer spending is strong, with retail sales up 6% and car sales also growing.”
The group said it still expects the UK to grow 2.6% this year and next, unchanged from its pre-referendum forecast.
Pattern of underperformance
The indifferent economic recovery after the global financial crisis has been a persistent theme in the Fund’s regular World Economic Outlook reports.
The latest report warns of the danger of a pattern of underperformance becoming entrenched.
Weak growth can lead to lower investment, slower productivity growth and the erosion of what the IMF calls “human capital” – which means skills and expertise.
The UK referendum result highlights wider trends in developed economies, the IMF says.
“The Brexit vote and the ongoing US presidential election campaign have highlighted a fraying consensus about the benefits of cross-border economic integration,” the report says.
The US reference is about the hostility to international trade agreements such as NAFTA, which involves the US, Canada and Mexico,) voiced in the election campaign.
The Republican candidate Donald Trump has been the most vocal, though not the only voice expressing such views.
It is a political trend that has the IMF worried. It argues that an environment hostile to trade would make it harder for commodity exporters and poorer countries to develop new lines of exports. Such a trend would also undermine productivity growth and the spread of knowledge and technology.
Mr Obstfeld says: “It is vitally important to defend the prospects for increasing trade integration. Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.”
In one important area – China – the IMF’s concerns have eased somewhat in the short term. Growth has been stable, allaying fears that China’s widely reported economic slowdown would be much more abrupt than it has been.
However, there is a warning about the country’s longer-term prospects and the debt burden faced by many businesses.
“A still-rising credit-to-GDP ratio and lack of decisive progress in addressing corporate debt and governance concerns in state-owned enterprises raise the risk of a disruptive adjustment,” the IMF says.
That could have important international implications especially for commodity and machinery exporters, for which China is a vital market.