IMF sees no economic upside to Brexit, warns of downward spiral
Her blunt warning came as the IMF said the country risks falling into a spiral of weaker economic growth, lower house prices and diminished foreign investment if voters opt to leave the European Union after the referendum next month.
The fund, in an annual report on Britain’s economy, said an exit vote would “precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output.”
A sudden stop to investment in key sectors of the economy such as commercial real estate and finance could exacerbate Britain’s record-high current account deficit, the report said.
“Such market reactions could sharply contract economic activity, further depressing asset prices in a self-reinforcing cycle,” the Fund said. It also repeated a warning that a Brexit shock could upset the global economy.
British voters have been bombarded with Brexit warnings in recent weeks. On Thursday, the Bank of England said the economy would slow sharply, and possibly even enter a brief recession, a possibility backed by Lagarde on Friday.
he Organisation for Economic Co-operation and Development has also warned that British voters risk paying a “Brexit tax” equivalent to a month’s salary by 2020 if they leave the EU.
Lagarde said the Fund would publish detailed forecasts for the size of a Brexit hit to Britain’s economy probably on June 16, a week before the referendum and the same day that finance minister George Osborne and BoE Governor Mark Carney are due to make high-profile speeches at the annual Mansion House dinner.
Anti-EU campaigners hit back at the IMF quickly, questioning the Fund’s authority when it comes to forecasting.
“Very few people in the media ever pause to ask that question, but its track record is laughable,” Arron Banks, a co-founder of the Leave.EU group, said. “Its forecasts are never right, it backed the euro and it didn’t see the financial crisis coming.”
Vote Leave, the official “Out” campaign, said Britain was being bullied by the IMF.
So far, the barrage of warnings about the economy do not appear to have swayed many voters. Opinion polls show Britons believe staying in the EU would be best for the economy but they are more or less evenly split on how they intend to vote.
Lagarde defended the Fund’s decision to publish a report that closely echoed the warnings of Prime Minister David Cameron and finance minister Osborne who worked closely with Lagarde when she was France’s finance minister.
“We are not doing it out of politics, this is not the job of the IMF. We’re doing it because it’s a significant downside risk. And second, it’s not just a domestic issue … it’s an international issue,” she said.
The IMF said Britain, after a Brexit vote, could take years to renegotiate trade deals with the EU and other countries, hitting investment and weighing heavily on economic sentiment.