It may not be the only thing the IMF needs to revise. They may also need to rethink their assessment of Brexit, which they saw as bad, both for the UK and for the wider regional and world economy. They are wrong on this.
There is a natural status quo bias in the pronouncements of such international organisations. As bad as the current set up is, they rarely if ever want to change and the alternative is always wrongly seen as worse. Although the IMF is seen as a barometer of current economic thinking, its forecasting record and policy prognosis is often wide of the mark. Indeed after the Asian crisis it was referred to as ‘I’M Fired’ – such was the impact of its erred policy. But even allowing for that, a number of points are worth nothing.
One can argue as the IMF did, that Brexit is an economic shock. Yet the UK has highlighted its ability to cope with shocks, as the rapid post-crisis rise in employment illustrates. Indeed, I recall one of the other global organisations, the Paris based OECD, back in 2005, identifying a list of responses that economies needed in order to be able to cope with shocks.
These were: macro policies that promote stability and growth; labour market policies that aid flexibility; an efficient framework of regulation that fosters competition; the institutional and governance structure that favours structural reform; and liberal trade and investment policies; while recognising that services respond well. On all the five areas they identified the UK would be well placed to cope with Brexit.
Part of the reason why the IMF continues to be cautious about global growth is the weakness in the EU itself, with a lack of demand and a fragile financial sector.
We are all aware that the EU does not address its key problems such as high youth unemployment, depression in Greece or mass migration. Moreover, even on the IMF’s own analysis Europe and the euro zone are the future slow growth regions of the world economy.
Remaining in the EU carries considerable uncertainty because we don’t know what will happen to the euro. To paper over the economic cracks the euro zone will have to centralise further towards political union. Although the UK does not have to join the euro, within the EU we will find it hard to avoid any fall out from it.
Finally, as the IMF itself is only too acutely aware – and indeed keeps reminding us – the world economy is changing. In recent years, globalisation, technical change and innovation are changing the outlook. Geography is no longer a barrier to trade. Economies that will succeed need to be flexible, adaptable and control their own destiny. Brexit allows us this. In contrast the EU has become centralising, regulating and controlling – the opposite of what is needed for jobs and future success. Brexit, far from being a problem, will deliver stronger future growth for the UK.