Just days after praising the central banks of the world for preventing any notable cash shortfalls, the International Monetary Fund (IMF) has issued a warning that the effects of the United Kingdom’s (UK) decision to sever its relationship with the European Union (EU) will have far-reaching consequences for the world economy.
A spokesperson for the IMF, Gerry Rice, described Brexit as likely to dampen global economic growth in the near term, and advised that the IMF urge policy makers to take decisive action when addressing the situation.
“Brexit has created significant uncertainty,” he said, “and we believe this is likely to dampen growth in the near term, particularly in the UK, but with repercussions also for Europe and the global economy.”
Rice went on to say that policy makers should remain prepared to act to counter financial market turbulence that threatens to create a substantive weakening of the global economic outlook. He punctuated his remarks by saying that “decisive policies will make a difference.”
“Prolonged periods of uncertainty and associated declines in consumer and business confidence would mean even lower growth and again, policymakers in the UK and the EU have a key role to play in helping to reduce the uncertainty during this period.”
The IMF feels that the near-term risk resulting from Brexit centers primarily in the UK, and to a lesser extent with the EU. From there, it predicts macroeconomic and financial market impacts that will radiate outward across the globe. This will lead to a rising level of uncertainty, both financial and possibly political.
“One notable source of this uncertainty concerns the terms of the future relationship between the UK and the EU, and these relate to questions about how long it will take to decide those terms, how the new relationship will impact business, and other actors,” Rice said.
Although the vote to exit the EU has strained relations between the EU and the UK, the IMF has encouraged both sides to work together with a sense of collaboration in an effort to effect a predictable and smooth transition.
Later in his comments, Rice again praised the efforts and commitments made by central banks around the world, including the Bank of England, the European Central Bank, the Bank of Japan, the United States Federal Reserve Bank, and many others. Specifically, these banks wisely planned and were able to provide adequate liquidity while preventing excessive market volatility.