IMF head calls for quick end to Brexit uncertainty

BEIJING, China – The head of the International Monetary Fund called Friday for quick action to end uncertainty over Britain’s vote to leave the European Union, which she said is dampening global economic growth.

The IMF cut this year’s global growth forecast by 0.1 percentage points to 3.1 per cent in a report released this week due to the shockwaves of the British vote, said Christine Lagarde.

Lagarde spoke after meeting with the Chinese premier, Li Keqiang, and leaders of the World Bank, the World Trade Organization and other bodies ahead of this weekend’s gathering of finance officials of the Group of 20 major economies.

“Our first and immediate recommendation is for this uncertainty surrounding the terms of Brexit to be removed as quickly as possible so that we know the terms of trade and the ways in which the United Kingdom will continue to operate in the global economy,” Lagarde said at a news conference.

Lagarde said that before the British vote, the IMF had been preparing to raise its global growth forecast by 0.1 percentage points due to improvement in Japan, China and the 19-country eurozone.

“Unfortunately, the United Kingdom decided to go for Brexit,” said Lagarde, a former French finance minister. “This is disappointing.”

Investors are watching the G20 meeting for any sign the United States, Germany, China and other major economies may agree on joint action to accelerate a weak global economic recovery.

At Friday’s event, Li, the top Chinese economic official, called for closer co-ordination of economic policy. He said countries with room to do should consider using higher government spending and called for reforms of reform of financial and labour markets.

“There are rising geopolitical risks. There are more uncertainties and destabilizing factors,” said Li. “All countries should work together to promote the recovery of the world economy.”

Li affirmed Chinese pledges to hold the exchange rate of the country’s currency stable, rather than devaluing to promote exports, and to avoid “a trade war or currency war.”

A similar G20 meeting in February in Shanghai ended with a joint statement that said co-ordinated action was impossible because major countries were at different points in their economic cycles. Some investors believe envoys in Shanghai agreed secretly to weaken the dollar to spur trade but there has been no official confirmation of that.

The final statement from this weekend’s gathering in Chengdu in China’s southwest “will be under the scanner for any hints of policy co-ordination — monetary or fiscal,” Citigroup economists said in a report.

U.S. Treasury Secretary Jacob Lew, speaking to reporters in Athens before flying to China, downplayed the likelihood of joint action.

“I don’t think this is a moment that calls for the kind of co-ordinated action that occurred during the Great Recession in 2008 and 2009,” said Lew. “It really is a moment where we each need to do what we can to ensure that where growth is soft it gets stronger and that prospects for the medium- and long-term are improved.”

Lew appealed for close integration of Britain and the EU in the event of a split.

“The best outcome is one that maximizes the integration of the UK and Europe and — because it’s likely to be a process that, at best, goes well beyond weeks or months — to have the nature of the discussion to be characterized by amicable, pragmatic engagement where the focus is on maximizing integration and co-operation.”