IMF sees ‘negligible’ Brexit impact on US growth

July 13, 2016 | By | Reply More

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wall-streetNEW YORK: Britain’s vote in a referendum to leave the European Union has caused uncertainty and increased risks to the US economy but thus far it looks likely to have a pretty “negligible” impact on US growth, the International Monetary Fund said on Tuesday.

The IMF said in its formal annual review of the US economy and policies that the June 23 “Brexit” vote has prompted a rise in the dollar that has been less than feared, up about 1 percent in nominal effective terms, while stock markets have recovered losses incurred right after the vote. Meanwhile, a safe-haven rush into US Treasuries has lowered yields, and home and business financing costs, considerably.

“The net effect on growth is pretty negligible,” Nigel Chalk, the IMF’s mission chief for the United States, told reporters on a conference call.

The IMF kept unchanged its previous US economic growth forecasts of 2.2 percent for 2016 and 2.5 percent in 2017, issued a day before the British referendum.

While financial market volatility or a further rise in the dollar’s value represent downside risks to US growth, the IMF saw upside risks from oil prices, including a delayed positive effect on consumption and a lessening drag from reduced oil-related investment.

However, the IMF said a “more complex and harmful” downside risk is that the potential growth rate may be lower than previously estimated, with a smaller output gap. It said growth in future years under this scenario could settle at well below 2 percent.

“If true, this would mean the US economy could soon bump up against capacity constraints that would slow growth and generate domestic inflationary pressures with negative global spillovers,” the IMF said in its report.

The IMF staff report said the United States faces a confluence of forces that will weigh on future gains, including a rising share of the US labor force shifting into retirement, aging basic infrastructure, low productivity gains and labor markets and businesses that appear less adept at reallocating human and physical capital.

The IMF board of directors stressed the need for Washington to take broad range of measures to tackle longer-term challenges, including boosting federal infrastructure spending and reaching agreement on skills-based immigration reform.

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