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IMF's Lagarde: no world recession from Brexit but risks high

Thursday, July 7, 2016 - 20:53
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International Monetary Fund chief Christine Lagarde said that Britain's shock vote to quit the European Union has injected significant uncertainty into the global economy but is unlikely to cause a world recession.

[WASHINGTON] International Monetary Fund chief Christine Lagarde said that Britain's shock vote to quit the European Union has injected significant uncertainty into the global economy but is unlikely to cause a world recession.

But in an exclusive interview with AFP, she also said that Brexit underscores the need for the EU to do a better explaining how it benefits Europeans, amid "disenchantment" with the institution.

And she said that Britain's move to cut corporate taxes to counter the expected economic fallout from its choice to break with the EU was just a "race to the bottom" that could hurt everyone.

Two weeks after the British referendum on cutting its EU ties, Ms Lagarde, speaking in her Washington offices at the beginning of her second five year term as IMF managing director, called the event a "major downside risk" for the world.

"We don't think that a global recession is very likely. The immediate effects will be on the UK," with some spillover into the euro area, she said.

Yet the longer the process for Britain's withdrawal remains unclear, the worse the effects could be, she said.

"The key word about this Brexit affair is uncertainty and the longer the uncertainty, the higher the risk," she said.

"The sooner they can resolve their timeline and the terms of their departure the better for all. It needs to be predictable as soon as possible." But Ms Lagarde, who during her first five years leading the Fund has already endured a substantial amount of turmoil in Europe, said she remained positive over the outcome.

"There will be spillover effects on the euro area. But my optimistic approach of life tells me that Brexit could be a catalyst that could push the EU to deepen its economic integration."

AFP