IMF chief: Brexit delay avoids bad outcome of no-deal split

French President Emmanuel Macron was throwing his weight around at the latest EU summit; fighting a largely solo battle against a longer Brexit delay.

More time for economic agents to prepare, but will not resolve UK-EU issues, she says

WASHINGTON • The six-month delay of Britain's exit from the European Union (EU) avoids the "terrible outcome" of a "no-deal" Brexit that would further pressure a slowing global economy, but does nothing to lift uncertainty over the final outcome, the head of the International Monetary Fund (IMF) has said.

Moreover, the just-struck arrangement would not resolve the issues between Britain and the EU, IMF managing director Christine Lagarde said at a news conference during the IMF and World Bank spring meetings in Washington on Thursday.

Earlier in the day, EU leaders gave Britain another six months to sort out its departure from the 28-member bloc, but the reprieve offered no clarity on when, how, or even if Brexit will happen.

"At least the UK is not leaving on April 12 without a deal. It gives time for continued discussions between the various parties involved in the UK. It probably gives time for economic agents to better prepare for all options, particularly industrialists and workers, in order to try to secure their future," Ms Lagarde said. "A no-deal Brexit would have been a terrible outcome."

While knock-on effects of the Brexit saga are rippling around the world to one extent or another, the three years since the June 2016 referendum to leave the EU have weighed most heavily on Britain.

The uncertainty facing British businesses has gone "through the roof" due to Brexit, hurting investment and posing long-term challenges for economic productivity, Bank of England (BoE) governor Mark Carney said at an event on the sidelines of the IMF and World Bank meetings.

Despite an "incredibly tight" labour market, businesses have held off on investment since the referendum, he said.

 
 
 
 

Brexit is just one of a clutch of economic risks that prompted the IMF this week to cut its global growth forecast for this year to 3.3 per cent, the lowest rate since 2016, with a slight rebound to 3.6 per cent expected next year.

The IMF's No. 2 official, Mr David Lipton, said the institution was not projecting a global recession, but the growth slowdown leaves the world in a delicate spot.

"We do have to worry about the possibility of recession," he said.

Officials have repeatedly pointed to fraught trade relations as a major culprit behind the global slowdown. Bank of Japan governor Haruhiko Kuroda said he remained hopeful that Japan's export-reliant economy will soon emerge from a soft patch, but added that ongoing US-China trade talks loomed over the global outlook.

Trade tensions are the top concern among emerging market finance officials as well. In a communique from a meeting of the so-called Group of 24 developing market nations released on Thursday, officials said the group stood ready to cooperate in the effort to build "a modern, open, rules-based, non-discriminatory and equitable multilateral trading system".

Weakness in global trade is making economies rely more on consumers, the BoE's Mr Carney said. "Normally, when expansions are reliant on the consumer, you start watching the clock, in terms of how much longer it will last."

German Finance Minister Olaf Scholz said the most important task for leaders was to eliminate the political risks hindering growth.

"It's our job to create an environment of certainty so that companies and consumers can make investments," Mr Scholz told reporters during a stop in Iceland on the way to Washington.

Ms Lagarde also said IMF shareholders were still undecided on whether to recognise Venezuelan opposition chief Juan Guaido as his country's leader, a step seen as required for the IMF and World Bank to provide aid.

But the IMF is prepared to move quickly on a package once a decision on the leadership question has been made, Ms Lagarde said. Her comments were echoed by Mr David Malpass, the new president of the World Bank.

REUTERS

 
A version of this article appeared in the print edition of The Straits Times on April 13, 2019, with the headline 'IMF chief: Brexit delay avoids bad outcome of no-deal split'. Print Edition | Subscribe