The UK's vote to leave the European Union (EU) has pushed the International Monetary Fund (IMF) to cut its world growth forecast for this year and next.

In its World Economic Outlook, published on Tuesday, the IMF forecast global growth at 3.1 percent in 2016 — 0.1 percentage points down on its April forecast, 0.3 percentage points lower than its January estimate, 0.5 percentage points below its estimate from October 2015 and 0.6 percentage points down on its forecast from July 2015.

The IMF also cut its forecast for 2017 growth to 3.4 percent — having predicted an expansion of 3.5 percent back in April and 3.6 percent in January.

Just one day before the Brexit vote, the IMF was planning to raise the growth outlook, it said in the opening statement of its latest quarterly World Economic Outlook report.

"The first half of 2016 revealed some promising signs — for example, stronger-than-expected growth in the euro area and Japan, as well as a partial recovery in commodity prices that helped several emerging and developing economies," Maury Obstfeld, director of research at the IMF, said on Tuesday.

"As of June 22 (the day before the UK's Brexit vote), we were therefore prepared to upgrade our 2016-17 global growth projections slightly. But Brexit has thrown a spanner in the works," he added.

How 2016 growth outlook changed:

Now: 3.1%

April: 3.2%

January: 3.4%

October last year 3.6%

July last year: 3.8%

Why the UK has to strike a deal

The IMF cut its forecast for UK growth this year to 1.7 percent, down from the 1.9 percent predicted in April. The downgrade to 2017 forecast growth was much more severe — the economy is now seen expanding 1.3 percent, rather than 2.2 percent.

These forecasts are based on the UK striking a deal with the EU that avoids a large increase in economic barriers, as well as no further major financial market disruption and limited political fallout. However, in a downside scenario, services could relocate to the euro area from the UK, hitting consumption and investment — and leading to a UK recession, the IMF warned. This bears echo of Goldman Sachs, whose economists forecast a "mild" recession by early 2017.

Euro Zone pangs

The IMF also knocked its euro zone forecast for 2017 in the wake of the Brexit vote. The 19-country currency union is now seen averaging growth of 1.4 percent next year, rather than the 1.6 percent previously forecast.

Germany, France, Italy and Spain were among the countries to get next year's growth forecasts cut.

"Brexit-related revisions are concentrated in advanced European economies, with a relatively muted impact elsewhere, including in the United States and China," the IMF said in the report.

The US is seen growing by 2.2 percent this year, down from the 2.4 percent forecast in April. This was due to disappointing first-quarter growth rather than the Brexit vote, the IMF said.

China's forecast remained almost unchanged, with growth of 6.6 percent seen in 2016 and 6.2 percent in 2017.

Mixed tidings for emerging markets.

The IMF upgraded its forecasts for Brazil and Russia, with both troubled economies seen posting growth in 2017, of 0.5 percent and 1.0 percent, respectively.

"Consumer and business confidence appears to have bottomed out in Brazil and the GDP contraction in the first quarter was milder than anticipated," the IMF report said.

"Consequently, the 2016 recession is now projected to be slightly less severe, with a return to positive growth in 2017. Political and policy uncertainties remain, however, and cloud the outlook.

"Higher oil prices are providing some relief to the Russian economy, where the decline in GDP this year is now projected to be milder," it added.

There was bad news for Nigeria, however, with a massive slash in growth forecast for the country. Nigeria's economy is now seen shrinking this year by 1.8 percent — the IMF predicted growth of 2.3 percent in April.

"In Nigeria, economic activity is now projected to contract in 2016, as the economy adjusts to foreign currency shortages as a result of lower oil receipts, low power generation, and weak investor confidence," the IMF commented.

Other risks to global growth include Europe and the Middle East's refugee crisis, the IMF said, as well as the legacy of the global financial crisis of 2008-09 — notably heightened long-term unemployment in southern Europe.

First Published:Jul 19, 2016 7:11 PM IST