The UK’s decision to remain in the EU until the end of 2020 after a 21-month transition period will significantly soften the blow of the country’s departure, the International Monetary Fund (IMF) said today.
In a its bi-annual Regional Economic Outlook report for May, the IMF discussed recent economic developments for various countries across Europe, and Brexit featured prominently.
The IMF said that the UK’s economic slowdown over the last year was driven in part by wage stagnation “following the sharp depreciation of the pound as well as Brexit-related uncertainties that held back investment”.
However, the international economic organisation found that the agreement between the EU and the UK to have a transition process of 21 months “mitigates the risk of a disorderly UK exit from the European Union and reduces the uncertainty facing firms and households”.
Still, the IMF stated that continued uncertainty around the specifics of Brexit could hold back growth in the Eurozone, and that a “long list of tasks in those negotiations remains to be accomplished”.
Overall, the IMF found that Europe was enjoying strong growth, with GDP increasing by 2.8 per cent in 2017, up from 1.8 percent in 2016. The organisation foresees growth to remain strong across the Euro area, although it will decline slightly in 2019.
The most worrying trends, according to the IMF, were the slowdown in inflation and wage growth in most advanced economies driven by high unemployment rates, as well as “sluggish productivity growth”.
“European markets have weathered the recent financial turbulence well, with capital flows to emerging market economies staying strong,” the IMF said.
“With economic prospects continuing to improve in the short term but medium-term prospects less bright, policymakers should seize the moment to rebuild room for fiscal maneuver and push forward with reforms to boost growth potential.”