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IMF Revives Recession Warning for U.K. Economy Over Brexit Vote

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The International Monetary Fund weighed in once more with its thoughts on Britain’s referendum, warning the U.K. could slide into a recession if it quits the European Union.

In a 64-page document, the Washington-based fund said that the size of the hit would depend on a multitude of factors, though its overall assessment is that the U.K. “would likely be worse off economically in the long run.”

The IMF also warned of a potential credit squeeze if liquidity markets dry up, which could stymie spending and investment. The Bank of England has moved to preempt this with additional auctions to make funds available to banks before and after the vote.

The IMF delayed publication of the report by a day after campaigning in the referendum was halted following the fatal shooting of Labour Party lawmaker Jo Cox on Thursday. Speaking on Friday, Managing Director Christine Lagarde said her thoughts were with Cox’s family and friends.

‘Adverse’ Scenario

In its report, the IMF presented forecasts for “limited” and “adverse” Brexit scenarios. In the worse situation, it sees growth slowing sharply this year and the economy shrinking 0.8 percent in 2017. The impact would see the economy 5.6 percent smaller by 2019 compared with a baseline forecast, while unemployment would rise above 6 percent and the deficit would be wider.

IMF officials said that a permanent hit to output would probably mean deeper austerity. Chancellor of the Exchequer George Osborne has said an emergency budget would be required within two months of a Brexit to fill a hole in the public finances.

“While recognizing that this choice is for U.K. voters to make and that their decisions will reflect both economic and non-economic factors, directors agreed that the net economic effects of leaving the EU would likely be negative and substantial,” the organization said.

The intervention is not the first from the IMF, which has issued several warnings on the potential impact of Brexit. Lagarde has also defended the organization’s stance, saying that officials are “just doing our job” in presenting their analysis.

The BOE and the Treasury have also issued referendum-related forecasts, and all have been criticized by the pro-Brexit lobby for scaremongering. “Leave” campaigners have also accused the IMF of a poor track record for failing to predict past events such as the 2008 financial crisis.

Quantifying Losses

In the long run, much of the economic impact would depend on what could be negotiated after a vote to leave, the IMF said. There would be direct negative effects from reduced trade access, as the country would be unlikely to quickly establish agreements with other countries. Brexit could also bring losses in productivity, which would be magnified if Brexit were accompanied by restrictions on migration.

Uncertainty during the transition could delay investment and hiring, and some firms may relocate if their business depends on access to the single market, according to the fund. It sees finance and manufacturing as the most vulnerable.

“Exit from the single market would almost certainly reduce market access of U.K.-based financial firms — both domestic and foreign — to the EU, subject them to regulatory uncertainty for some time, and force them to re-examine business models,” the IMF said.

There’s also the potential for a vicious circle where households hold off buying durable goods and property, resulting in weaker demand which in turn pushes up unemployment and further reduces consumption, the IMF said.

The paper estimated that sterling could plunge as much as 15 percent, which would push up inflation to 4 percent — double the BOE’s target. IMF officials also discussed more fundamental economic issues for the U.K., including low productivity growth, the record current-account deficit and high levels of household debt.

The BOE has said it would face a tradeoff between containing inflation and boosting output in the event of a vote to leave. It warned on Thursday that the potential impacts of a U.K. exit from the EU extend beyond Britain, with spillover effects to the global economy. The IMF also highlighted external risks, and said other EU economies are most vulnerable, especially Ireland, Cyprus, Malta, the Netherlands and Belgium.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Forex

CBN Moves Against 55 Companies, Individuals for Forex Infractions

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CBN Commences Investigation into FX Activities of  55 Companies, Individuals

In an effort to ease foreign exchange pressure and better manage the dwindling foreign reserves, the Central Bank of Nigeria has intensified fight against companies and individuals taking advantage of the nation’s limited foreign reserves.

The apex bank said it has commenced investigations into the activities of 55 companies and individuals engaging in foreign exchange transactions.

The central bank attributed the reason for the investigation to foreign exchange deals outside the official Investors & Exporters (I&E) forex window.

Some of the companies being investigated are Stallion Nigeria Limited, Interswitch Nigeria Limited, as well as a leading global shipping line, CMA CGM Nigeria Shipping Limited.

Other big names on the list are Petro-Afrique Energy Services Limited, Steel Force Far East Limited, Auto Petroleum Company Limited, Cavendish Mechanicals Limited, Aquashield Oil & Marine Limited, Haitch & Elf Integrated Services Limited, Fenog Nigeria Limited, and Promasidor Nigeria Limited.

The I&E window was established to facilitate foreign exchange transactions and encourage a moderate market-determined exchange rate.

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Naira Declines to N465 Against US Dollar on Black Market

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Naira Dollar Exchange Rate

Naira Falls to N465 Against US Dollar on Black Market

Nigeria’s economic uncertainties continued to weigh on the Nigerian Naira despite the Central Bank of Nigeria’s forex sale resumption.

The local currency declined by N3 from N462 a US dollar to N465 on the black market even with over $58 million injected into the forex market through the bureau de change.

Against the British Pound, Naira depreciated by N5 from N595 to N600 on Friday while it dipped by N3 against the European common currency to N548, down from N545 it traded on Thursday.

A series of weak economic fundamentals and anti-people policy continued to hurt the nation’s economic outlook and investors’ confidence.

In a recent event, the Nigerian government simultaneously raised electricity tariffs, pump prices and foreign exchange rates in an economy that depends on imports for most of its supplies.

Also, with the unemployment rate at over 27 percent, inflation rate over 13 percent and the number of companies shutting downing operation rising on a daily bases, foreign investors and even local investors are now holding back on investments needed to support the nation’s weak foreign reserves and cushion the negative effect of COVID-19.

While the exchange rates have moderated slightly from COVID-19 peak, it remains close to COVID-19 record.

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Zenith Bank Joins Other Banks to Cap International Spend Limit at $100/Month

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Zenith Bank Caps International Spend Limit at $100 Per Month

Following persistent forex scarcity impacting the nation, Zenith Bank has joined other deposit money banks capping international spend limits.

In an e-mail to customers, the lender said “Please be informed that the monthly international spend limit for your Zenith Bank Naira Card has been reviewed to US$100 while the use of Zenith Bank Naira cards for international Automated Teller Machine cash withdrawals is still temporarily suspended.’

It added that this review is in response to change in Nigeria’s macroeconomic factors.

The bank, however, advised those with higher international spend requirements than the US$100 stipulated above to visit any Zenith branch and request a foreign currency debit or prepaid card “which are available in US Dollar, Pounds and Euro variants.”

This is coming a few weeks after UBA, GTBank, First Bank and others capped their international spend limits to $100 for similar reasons. However, Zenith’s decision was after the Central Bank of Nigeria commenced forex sale to the Bureau De Change Operators across the country.

 

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