The head of the International Monetary Fund confessed she jumped for joy after hearing news of a Brexit breakthrough that she said would spare the UK significant economic damage.
Kristalina Georgieva, the IMF’s new managing director, said there would still be some impact from leaving the EU with an agreement but said much of that had already been felt in the period since the 2016 referendum.
Speaking at a press conference at the IMF’s annual meeting in Washington, Georgieva urged MPs to back the deal in Saturday’s vote. “As my old boss Jean-Claude Juncker has said: ‘Where there’s a will there’s a deal.’ I hope that will holds in all quarters.”
Georgieva was joined in welcoming the news by the president of the World Bank, David Malpass, who said an agreement would remove one of the factors holding back growth in poor countries.
The IMF and the World Bank have identified a no-deal Brexit as one of the key factors that could turn the current slowdown in the global economy into a full-blown recession.
Georgieva identified Brexit – along with the trade war between China and the US, and geopolitical tensions – as one of the three fractures that were holding back growth.
“This is good news. This is welcome. Just like the pound, which jumped, when I saw the news I jumped. I would very much like to see an agreement being reached.”
The IMF said in its latest health check on the global economy that it expected the UK to grow by 1.2% this year and by 1.4% in 2020 – but only if an agreement between London and Brussels was reached.
Georgieva said the IMF’s economists had estimated that a no-deal Brexit would cost the UK between 3.5% and 5% of GDP and the EU 0.5% of GDP. “That’s quite significant.”
The IMF managing director said there would still be implications from leaving with a deal but they would be “significantly more modest” and of the order of 2% of national output.
“A lot of that impact has already been absorbed because anticipation of the UK leaving has been built over the past three years,” she said.
Malpass said a Brexit deal will be good for poor countries because it would end the uncertainty that has led to slower growth.
“Brexit has been an uncertainty in the world outlook, both in terms of trade and the wider aspects of the Brexit relationship. It has been weighing on both the UK economy and the EU economy.
“If there were clarity it would help the growth outlook quite a bit,” Malpass said at a press conference. “Uncertainty affects development because part of the slowdown in the developing world is related to the slowdown in the developed world. Europe has slowed significantly. If there was more certainty that would be very helpful.”
Georgieva, who replaced Christine Lagarde as the IMF’s managing director earlier this month, said the organisation had five priorities as it sought to boost global growth from its weakest since the financial crisis of a decade ago.
She said it was important to “undo the harm” caused by the tit-for-tat tariff war between the US and China, and to turn the truce agreed between Washington and Beijing into a lasting peace.
Monetary policy – interest rates and quantitative easing – should be used wisely and with an acknowledgement of the risks to financial stability from low borrowing costs.
She added that fiscal policy – tax and public spending – should play a more central role for countries with strong budgetary positions and that structural reforms – such as cutting red tape and encouraging greater female participation in the workforce – should be undertaken.
“Finally, we need to promote stronger international cooperation because so many of the challenges we face – from financial regulation to money laundering and climate change - do not respect national borders.”
