The International Monetary Fund’s job is to worry about the state of national economies, to spot trouble on the horizon and, in extremis, provide support to countries who struggle in the form of emergency loans.
Argentina is currently receiving bailout funding from the IMF, in the aftermath of the financial crisis Greece did too. It’s often forgotten that the UK requested its assistance in 1976.
The IMF’s assessment of the UK prospects over next two year is relatively upbeat.
It predicts that growth will “stabilise” at 1.4% in 2020 and 1% in 2021, weak by UK historical standards but growth none-the-less and stronger growth than the IMF is predicting for Germany, France and Japan.
The forecast assumes “an orderly exit from the European Union at the end of January”, which feels like a safe bet “followed by a gradual transition to a new economic relationship” which doesn’t.
Our future prosperity will be greatly influenced by the future trading relationship the government negotiates with the European Union, our largest trading partner, during the course of this year.
How close the IMF expects that relationship to be isn’t clear but then the messages the government sends out are mixed. Before Christmas, the chancellor spoke of “an ambitious, deep, comprehensive” agreement.
On Friday, in an interview with the FT, he urged businesses to “adjust” to a future where Britain no longer adhered to EU rules and regulations.
Generally speaking, the looser the trading relationship, the more economic disruption and damage will be caused.
The IMF has always seen Brexit as an act of economic self-harm and has repeatedly said as much.
On the eve of the referendum in May 2016, Christine Lagarde, the then head of the IMF, declared that the consequences of Brexit would “pretty bad to very, very bad”.
Her successor, Kristalina Georgieva, also believes Brexit will be “painful” for the UK and the EU and for countries who share close economic ties.
The election result in December has shifted the narrative. Brexit will happen, the question now is what form it takes.
As the IMF notes, the pound has risen since September as the perceived risk of a no-deal departure has diminished.
The IMF has other things to agonise over besides the UK’s departure from the EU.
China’s economy is slowing, other emerging economies are under-performing; violence has flared between the US and Iran; in Hong Kong and elsewhere social unrest rumbles on; the damaging trade dispute between US and China shows early signs of resolving but the US is threatening economic sanctions against France and has intensified action against the Chinese company Huawei in the name of national security.
And then there’s climate change. The IMF explicitly links the frequency and intensity of extreme weather to climate change.
Tropical storms, floods, heatwaves, droughts and wildfire cause human suffering and economic damage.
“A continuation of the trends could inflict even bigger losses across more countries,” the IMF warns.
As it stands, the IMF concludes that the risks today are “less skewed toward adverse outcomes” than they were in October but the but balance of risk “remains to the downside”.
Only economists use tortured language like this.
The message though is clear: it’s less gloomy than it was but there’s a lot to be anxious about.