International Monetary Fund (IMF) on 8th of July has cut economic growth prospects of the region using Euro currency (Eurozone) within the next 2 years due to uncertainty from that the British voters chose to leave European Union (EU). IMF also warned that the situation could turn worse if the insecure psychology continues to reign in the financial markets.
Reuters said IMF forecast growth rate of total gross domestic product (GDP) of the 19 eurozone members will only reach 1.6% this year, compared with 1.7% given in once predicted. Growth forecast of this institution for the Eurozone in 2017 fell to 1.4% from 1.7%.
IMF said, the global economy continues to decelerate could derail the growth based on Eurozone domestic demand. In addition, Brexit effect, the wave of migrants, the increased security concerns, and the weakness of the banking system can adversely affect the regional economy.
Mr. Mahmood Pradhan, deputy director of the IMF's European region, also warned that if Brexit talks between EU and UK extended and increased risk aversion in global financial markets, the Eurozone growth will be even further reduced.
"If risk aversion sentiment lasts, we believe that its impact on growth could be larger. At this time, it is difficult to predict how long it will last," Pradhan told reporters.
Mr Pradhan also said that Eurozone growth is 1.4% in 2017 based on the assumption that EU-UK between negotiations take place relatively quickly with the result that Britain have still access of full tariff market of EU. Even this optimistic scenario also leads to slow investment and pressure on consumer confidence and the market, Mr Pradhan said.
IMF has not yet calculated the full extent of impact on growth in the case of that UK have access to the EU market under the basic rules of the World Trade Organization (WTO). Mr Pradhan said that would be a "significant change" for Britain, which EU countries account for about 40% of exports.
"If they go to the WTO option, then reaching agreement would also take a lot of time, and just this will cause big losses," Mr Pradhan said.
The report of IMF said the medium-term prospects of the Eurozone economy is not bright due to the impact of the problems due to the crisis, the high unemployment rate, public debt and private sector debt increases , to deep weaknesses in the structure.
"As a result, growth in the next 5 years will probably only reach about 1.5%, while inflation was only 1.7%," IMF identified.