The IMF cut its growth forecast for the eurozone on Friday, citing the fallout from Britain's shock vote to leave the European Union. The IMF cut the growth forecast for 2017 to 1.4 percent, from the earlier 1.6 percent, "mainly due to the negative impact of the UK referendum outcome," the International Monetary Fund said in a statement. "Downside risks have grown," the Washington-based fund added.
Spillovers from the Brexit vote, the refugee crisis as well as terrorism concerns "could contribute to greater uncertainty, hurting growth and hindering progress on policies and reforms," it said. British Prime Minister David Cameron stepped down last month after losing the Brexit referendum and left it to his eventual successor to start negotiations to find a new relationship with Brussels.
EU member states have pressed Britain to begin the negotiations immediately but in London the preferred option is to proceed with extreme caution, leading some to say Britain may even be stalling on the talks. "The impact that we worry about is that if the process takes longer, in addition to the obvious trade disruption and the uncertainty about the new trade relations between the UK and the EU area," said Mahmood Pradhan, deputy director of the IMF's European department, in a teleconference with reporters. "We worry quite a lot about the risk aversion in financial markets in the face of that uncertainty," he added.
Despite Brexit, the IMF said that eurozone growth this year would hit a stronger than expected 1.6 percent, instead of the previously forecast 1.5 percent. This was based on a "strengthened recovery" caused by a pause in austerity policies, lower oil prices, and monetary stimulus by the European Central Bank, the IMF said.
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