Earlier this week the International Monetary Fund revised up its forecast for UK growth. This is the second time in 3 months that the IMF has upgraded its forecast for the UK economy after conceding that its performance since the vote to leave the EU has been much stronger-than-expected. The upgraded outlook now suggests the UK will grow by 2% in 2017, second only to the US as the fastest growing advanced economy. In a note after the upgrade the IMF stated that growth ‘remained solid in the UK, where spending proved resilient in the aftermath of the June 2016 referendum in favour of leaving the European Union’. The IMF had believed that the UK would only grow at 1.1% after the shock of the Brexit vote, however they subsequently revised up that figure to 1.5% in January this year.
Along with the upbeat message on the UK economy the IMF also viewed the global economy with a more bullish look. Now it expects world growth to be 3.5% in 2017 and 3.6% in 2018. However they warned there may be dark clouds on the horizon. As Maurice Obstfeld, the IMF’s economic counsellor observed that ‘The global economy seems to be gaining momentum, we could be at a turning point’ but cautioned ‘even as things look up, the post–world war two system of international economic relations is under severe strain despite the aggregate benefits it has delivered – and precisely because growth and the resulting economic adjustments have too often entailed unequal rewards and costs within countries’, adding that ‘One salient threat is a turn toward protectionism, leading to trade warfare. Mainly in advanced economies, several factors – lower growth since the 2010–’11 recovery from the global financial crisis, even slower growth of median incomes, and structural labour-market disruptions – have generated political support for zero-sum policy approaches that could undermine international trading relationships, along with multilateral cooperation more generally’.
The IMF listed protectionism as one of 6 downside risks to the global economy, with others including an aggressive rolling-back of financial regulation leading to excessive risk-taking and faster than expected interest rate increases in the UK leading to financial market disruption. However, by far the biggest concern is protectionism, with Obstfeld predicting that ‘Capitulating to those pressures would result in a self-inflicted wound, leading to higher prices for consumers and businesses, lower productivity, and therefore, lower overall real income for households’.