The IMF has kindly given us some nice animated graphics to go with their ‘alternative scenario’ forecasts for global growth.
The Brexit referendum result caught financial markets by surprise. Revised growth forecasts must now factor in the potential consequences for the UK, Europe, and broader advanced markets.
The IMF has adjusted their current ‘baseline’ scenario, to account for the reality of the vote. Additionally it considers two alternative scenarios, based on their structural model of the global economy. Under the ‘downside’ scenario business and consumer confidence is lower and financial conditions are tighter than the baseline, both in the UK and the rest of the world. Plus a portion of the UK financial services section migrates to within the EU.
The rather less probable (but possible) ‘adverse’ scenario sees intensification of financial stress, especially in advanced Europe, and larger confidence effects. It also assumes a WTO-basis for trade agreements between the UK and EU. Reduced consumption and investment leads to a UK recession.
The three graphics below illustrate Global, Advanced, and Emerging projections in the different scenarios. Source.