In its April World Economic Outlook, the fund has upped its forecast for UK growth for the second time this year, although it is sticking to a downward revision to 1.5% for the 2018 outlook.
In January it revised the figure for 2017 up from 1.1% to 1.5% following the UK’s better than expected economic performance in the aftermath of the EU referendum. It has now boosted the growth rate to 2%.
Growth, it says, has “remained solid” since the vote in June last year on the back of “resilient” spending. “The 0.9 percentage point upward revision to the 2017 forecast and the 0.2 percentage point downward revision to the 2018 forecast reflect the stronger-than-expected performance of the UK economy since the June Brexit vote, which points to a more gradual materialisation than previously anticipated of the negative effects of the UK’s decision to leave the EU.
“These effects include reduced consumer purchasing power following the pound’s depreciation and its gradual pass-through to prices and the impact of uncertainty on private investment.”
The IMF adds that it believes the UK’s medium-term growth prospects have also diminished as a result of the likely increase in barriers to trade and migration, and a potential downsizing of the financial services sector caused by barriers to cross-border financial activity.
The good news from the UK, Europe and Asia as well as the predicted higher growth rate in the US has contributed to a bullish forecast for the global economy.
The IMF is keeping to its earlier forecasts of higher growth (up from 3.1% last year to 3.5% this year and 3.6% in 2018).
It says that the growth will be “broad-based” across advanced, emerging and low-income economies, largely on the back of manufacturing and trade.
However, it warns that there are many countries struggling with low growth rates: they include commodity exporters in the Middle East, Africa and Latin America, and several low income countries which face mass starvation as a result adverse weather conditions and civil unrest.
There are also questions about the sustainability of the current momentum, particularly in the light of macroeconomic policies in the US and China.
The IMF also highlights the threat from the growth in advanced economies of domestic political movements sceptical of international economic integration.
“A broad withdrawal from multilateralism could lead to such self-inflicted wounds as widespread protectionism or a competitive race to the bottom in financial oversight – a struggle of each against all that would leave all countries worse off,” it says.
And it calls on governments to renew their multilateral commitment to support trade, as well as introduce national initiatives to help workers who have been adversely affected by structural economic transformations, including those caused by rapid technology changes.