IMF: Brexit could cause 'severe' damage to the global economy

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The International Monetary Fund has warned that a so-called Brexit — Britain leaving the European Union — is a “real possibility” and could cause “severe regional and global damage”.

In the fund’s latest update of its World Economic Outlook, the institution often called the central banker’s central bank said that Brexit “could weigh heavily on confidence and investment, all the while increasing financial market volatility” and argued that the upcoming referendum has already created uncertainty for investors.

Alongside the gloomy predictions about what will happen if the UK votes for Brexit, the IMF also cut forecasts the UK’s GDP growth in 2016. Growth is expected at 1.9% this year, down from 2.2% in January. That cut came alongside a global growth forecast cut, which saw predictions slashed from 3.4% in January to 3.2% today.

The fund’s chief economist Maurice Obstfeld said in a press conference after the WEO’s release, that the political consensus “that once propelled the European project is fraying” thanks to a “rising tide of inward-looking nationalism.” This, he said, makes Brexit a “real possibility.”

Britain’s Chancellor George Osborne welcomed the IMF’s warning on Brexit, saying in a statement:

While Britain remains one of the fastest growing advanced economies in the world, the IMF’s warnings about our exit from the EU are stark. For the first time, we’re seeing the direct impact on our economy of the risks of leaving the EU.

The IMF says that these risks are a reason why they have reduced Britain’s growth forecast this year.

If Britain leaves the EU, the IMF says there would be a short-term impact on stability and long-term costs to the economy.

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