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 Concern that British voters are edging closer to leaving the EU in a
June 23 referendum has spooked finance ministers, central bankers
and other officials gathered here for the International Monetary
Fund and World Bank spring meetings.
IMF Managing Director Christine Lagarde signaled policymakers'
heightened fears that a "Brexit" could derail Europe's shaky
economic recovery and reverberate further afield.
"We have clearly elevated 'Brexit' as one of the serious downside
risks on the horizon of global growth," Lagarde said in a press
conference just two days after the IMF cut its 2016 global growth
forecasts for the fourth time in less than a year.
Lagarde, who said it was her personal hope that Britain remain in
the EU, predicted a divorce would lead to years of financial
uncertainty.
EU Economic and Monetary Affairs Commissioner Pierre Moscovici
chimed in at a separate event, describing the political
repercussions of a British vote to leave the bloc as "very bad
news."
Their comments followed the Bank of England's clearest warning yet
that Britain's economy would likely suffer and its currency slide if
it bolted from the EU.
Moscovici added that the near-term European growth outlook was
already worsening.
"Overall, we now expect GDP growth in the first quarter of this year
to have been positive but slower than we had expected," Moscovici
said in a speech at the Peterson Institute for International
Economics.
CHINA'S SHADOW
Lagarde also said the IMF was "concerned" about China following
through on the restructuring of its struggling state-owned
enterprises as the country shifts to slower, more sustainable growth
driven by consumer spending.
China's economic slowdown has slashed demand for commodities and
components worldwide, causing spillovers to emerging markets and
advanced economies alike. A shock devaluation of the yuan last
August and further declines earlier this year sparked financial
market turmoil and worries about further devaluations.
People's Bank of China Deputy Governor Yi Gang offered some
reassuring words that China's growth would be in line with IMF
estimates.
"I'm pretty confident that we are going to have between 6.5 and 7
percent growth this year," Yi said at a Brookings Institution event
in Washington.
He also said that China's central bank did not want to see an
"overshoot" in its currency, without being specific about the
direction.
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Earlier on Thursday, Lagarde unveiled the IMF's policy agenda, which
pledged to provide more resources to help the Fund's 188 member
countries boost growth and protect those vulnerable to a global
slowdown and low commodity prices.
The IMF also vowed to ensure it had adequate funds to back its
lending programs, and examine reforms including strengthening its
lending toolkit and ties to regional lending institutions.
But differences over the European Central Bank's negative interest
rate policy continued as Jeroen Dijsselbloem, who chairs the group
of European finance ministers, warned that the measure was reaching
its limits.
"Expansionary monetary policy ... supports the economy in the short
run, but the limitations are imminent and negative side-effects are
becoming stronger," Dijsselbloem said in a speech to the Peterson
Institute.
Negotiations over Greece's bailout program, officially on hold
during the Washington meetings, also bubbled to the surface, with
Lagarde promising the IMF would not walk away from the lending
'troika' that also includes the ECB and European Commission.
Lagarde has been pushing the idea of extending debt relief to
Greece's government in exchange for fiscal reductions.
Argentine Finance Minister Alfonso Prat-Gay presented what may have
been the one bright bit of news, saying the country's impending debt
issue, its first in more than a decade, was seeing "awesome" demand
from investors.
Argentina's new right-of-center government is pursuing a host of
business-friendly economic reforms as it attempts to attract
investors and reestablish itself in international markets.
Prat-Gay added that the government is making the curbing of the
country's double-digit inflation rate a top priority.
(Reporting by David Lawder; Additional reporting by Jason Lange,
Daniel Bases, Balazs Koranyi, Jan Strupczewski, Lindsay Dunsmuir,
Leika Kihara, David Chance, Gernot Heller and Koh Gui Qing; Editing
by Paul Simao)
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