IMF: Brexit, low productivity to slow eurozone growth

Indonesian workers prepares the venue of the International Monetary Fund (IMF) and World Bank annual meeting in Bali, Indonesia, on 8 October 2018. [EPA-EFE/MADE NAGI]

The International Monetary Fund warned on Tuesday (9 October) of a further slowing in eurozone’s economic growth, which was forecast at 2% this year, due to persistent uncertainty over Brexit and low productivity. EURACTIV’s partner efe-epa reports.

The eurozone is expected to grow by 2% this year, two-tenths less than what was expected in July, and then 1.9% in 2019.

“Among advanced economies, growth disappointed in the euro area and the United Kingdom. Slower export growth after a strong surge in the final quarter of 2017 contributed notably to the euro area slowdown,” said the Global Economic Prospects report, released at the start of the annual meeting of the IMF and the World Bank this week in Bali, Indonesia.

The report cut the growth forecast in Germany to an estimated 1.9% for 2018 and 2019, registering a reduction of three-tenths and two-tenths, respectively.

The report said France expects to grow by 1.6%  in 2018 and 2019, two-tenths and one-tenth less than that expected in July.

Italy, on the other hand, would maintain its low growth rate, with a forecast of 1.2%  for 2018 and 1% for 2019, pending a clarification of the new government’s political agenda.

Spain, about which the IMF already released figures last week, would continue to lead among the big euro economies, with projected growth of 2.7% this year and 2.2% in 2019.

The UK’s growth is expected to be below that of the eurozone, with an expansion of 1.4% this year and 1.5% for the next.

“Higher energy prices helped dampen demand in energy importers,” stressed the report, while adding that some countries in the region were also affected by political uncertainties

As it has done in its latest reports, the IMF also warned that growth in the eurozone would continue to slow down up to 1.4% annually, due to an ageing population and moderate growth in productivity.

Meanwhile, IMF chief economist, Maurice Obstfeld, said at another press conference that the possible failure of Brexit negotiations continued to be a major risk.

Prolonging the ongoing talks between Brussels and London without a concrete agreement has also created persistent uncertainty about future commercial costs.

For IMF, “the rise in trade barriers between the United Kingdom and the European Union would imply sizable losses for the UK economy and, to a lesser extent, for its trading partners, with negative impacts concentrated in countries with the largest trade links with the UK,” added the report.

The exit agreement would include aspects such as payment to be made by the UK to the European Union – around 39 billion pounds (around $51 billion)- citizen rights in the UK and EU countries as well as the status of the border between Northern Ireland and the Republic of Ireland.

Brexit is expected to be addressed this month at the European summit, although negotiations on a final agreement are expected to continue until next November.

Subscribe to our newsletters