23 October 2016
IMF managing director Christine Lagarde signaled  that a "Brexit" could derail Europe's shaky economic recovery. Photo: Reuters
IMF managing director Christine Lagarde signaled that a "Brexit" could derail Europe's shaky economic recovery. Photo: Reuters

Policymakers warn on Brexit, China slowdown

World financial leaders sounded a sour note on the global economy on Thursday, pointing to Britain’s possible exit from the European Union as a serious threat alongside China’s bumpy growth path and dissent over interest rates in the euro zone, Reuters reports.

Concern that British voters are edging closer to leaving the EU in a June 23 referendum has spooked finance ministers, central bankers and other officials gathered in Washington for the International Monetary Fund and World Bank spring meetings.

IMF managing director Christine Lagarde signaled policymakers’ heightened fears that a “Brexit” could derail Europe’s shaky economic recovery and reverberate further afield.

“We have clearly elevated ‘Brexit’ as one of the serious downside risks on the horizon of global growth,” Lagarde said in a press conference just two days after the IMF cut its 2016 global growth forecasts for the fourth time in less than a year.

Lagarde, who said it was her personal hope that Britain remain in the EU, predicted a divorce would lead to years of financial uncertainty.

EU Economic and Monetary Affairs Commissioner Pierre Moscovici chimed in at a separate event, describing the political repercussions of a British vote to leave the bloc as “very bad news”.

Their comments followed the Bank of England’s clearest warning yet that Britain’s economy would likely suffer and its currency slide if it bolted from the EU.

“Overall, we now expect GDP growth in the first quarter of this year to have been positive but slower than we had expected,” Moscovici said in a speech at the Peterson Institute for International Economics.

Lagarde also said the IMF was “concerned” about China following through on the restructuring of its struggling state-owned enterprises as the country shifts to slower, more sustainable growth driven by consumer spending.

China’s economic slowdown has slashed demand for commodities and components worldwide, causing spillovers to emerging markets and advanced economies alike.

A shock devaluation of the yuan last August and further declines earlier this year sparked financial market turmoil and worries about further devaluations.

People’s Bank of China Deputy Governor Yi Gang offered some reassuring words that China’s growth would be in line with IMF estimates.

“I’m pretty confident that we are going to have between 6.5 and 7 percent growth this year,” Yi said at a Brookings Institution event in Washington.

He also said China’s central bank did not want to see an “overshoot” in its currency, without being specific about the direction.

Earlier on Thursday, Lagarde unveiled the IMF’s policy agenda, which pledged to provide more resources to help the Fund’s 188 member countries boost growth and protect those vulnerable to a global slowdown and low commodity prices.

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