Back in the autumn of 1976, the International Monetary Fund held its annual meeting in Manila in the Philippines. Britain’s chancellor at the time, Denis Healey, was on the guest list but only made it as far as Heathrow before a run on the pound forced him to return to his desk.
Memories of that incident have been rekindled by the timing of this year’s IMF spring meeting, with finance ministers and central bank governors of the G7 due to meet on Friday, the day on which it is still possible that the UK might leave the European Union without a deal.
That prospect alarms the IMF. It has never been keen on the idea of Brexit, and was one of the organisations that issued the strongest warnings before the referendum about the consequences of a leave vote.
But in 2016, the IMF at least had the comfort of knowing that the global economy was looking good. A synchronised upswing was in place and the years of sub-par activity that followed the financial crisis of 2008-09 finally seemed to be over.
Now Brexit is merely one of a sea of troubles. The fund is worried about slowing growth in China, the trade wars launched by Donald Trump, the slowdown in Germany, the fragile financial situation in Italy, the street protests in France, the crises that have engulfed Argentina and Turkey, and the build-up of both private and public debt.
Taken together, these headwinds have been enough to persuade the IMF to shave 0.4 percentage points off its forecast for global growth this year from its October 2018 World Economic Outlook. What’s more, it believes that the risks to its projections are tilted to the downside.
The IMF is not entirely convinced that a possible trade truce between Washington and Beijing will hold. Despite pressure from Trump, it believes that stronger-than-expected US growth could hurt over-indebted companies by triggering higher interest from the Federal Reserve. It thinks China might respond with excessive stimulus if US tariffs start to bite, heightening financial vulnerability and leading to even bigger problems further down the road.
It is now 10 years since the global economy bottomed out in the spring of 2009 and, by historic standards, the recovery is due to end reasonably soon. The IMF knows that it might only take one shock to turn a slowdown into something a lot more serious. That could be Brexit but it could easily be something else.
