IMF Admits Brexit Won’t Cause Recession, Proving Its Critics Right

When the voters of the United Kingdom chose to leave the European Union last month, the shock among most elites was palpable. Suddenly, a Federalist essay titled “The Death of Expertise” was resurrected on Facebook feeds everywhere, despite it being over two years old when the UK voted Out. Americans, Brits, and nearly everyone else – all of whom should have known better – declared Brexit and the Trump phenomenon as Anglospheric clones. Don’t those English voters know what’s good for them? Don’t they know what all the experts were saying about Brexit?

Putting aside the fact that Wales also voted to Leave, the entire episode has provided a perfect example of why voters – at least UK voters – paid little attention to what the experts were saying before 23 June: because they’re saying something different now. In particular, it’s the International Monetary Fund – supposedly the global paragon of unbiased economic analysis – that is playing what-a-difference-a-month-makes.

Here’s the IMF on the 18th of June (Guardian).

The IMF used its annual report on the British economy to say Brexit would plunge the UK into recession next year and that it could see no economic advantage in leaving the EU.

…

The IMF said last month that Brexit could spark a stock market crash and a steep fall in house prices.

Well, the stock market crash has already been shown as chimerical (the FTSE 100 is upu more than 5% since Referendum Day, while the broader FTSE is off only 2.5%, and still higher than on Friday, 17 June, before investors incorrectly assumed a Remain victory). Now the IMF is admitting the recession will probably not happen either (Daily Mail).

IMF officials were labelled ‘clowns’ with ‘serious credibility problems’ last night after saying the British economy will grow faster than Germany and France in the next two years – only weeks after its doom-laden warnings about Brexit.

After saying that leaving the European Union could trigger a UK recession, the International Monetary Fund now expects the British economy to grow by 1.7 per cent this year and 1.3 per cent next year.

To be fair, the source of the “clowns” and “serious credibility problems” lines was the UKIP MP Douglas Carswell – a brilliant fellow who nonetheless has a clear bias.

Still, it wasn’t the first time the IMF was caught with egg on its face (same link).

It is not the first time the IMF has had to row back from damaging comments about the UK economy. In April 2013, the fund’s then chief economist Olivier Blanchard said Britain was ‘playing with fire’ by pressing ahead with austerity at a time of ‘very low growth’. But the IMF was quickly forced into a dramatic volte face as the UK economy sprang into life, forcing Mrs Lagarde to admit ‘we got it wrong’.

“Mrs Lagarde” would be Christine Lagarde, the same one who is still leading the IMF today as it reverses course on its predictions for the British economy.

This is a reminder of how the “experts” can lead themselves (and others) astray. Usually it’s one of three things: the experts are deceived (such as in Iraq in the early aughts, when Saddam Hussein used Schrodinger’s Cat as a tool of diplomacy – trying to convince Washington he didn’t have weapons of mass destruction and make Tehran believe he did have them at the same time), the experts are missing pieces of information, or the experts make the wrong assumptions (which was the case here). Much of the expert opinion on Brexit was driven by the gloom-and-doom report from the UK Treasury Civil Service, which (1) blithely dismissed any possible gains from a reduction in EU regulations, (2) used a Canada-EU trade deal as a model without accounting for Canada’s deeply protective “supply management” in agriculture, and (3) made no attempt to examine the potential effects of a reduction in taxes that could result from leaving the EU (and EU mandates for certain value-added taxes), though it should be noted that the Leave campaign didn’t suggest a tax cut.

Now, a month after the vote, the “experts” are beginning to walk back their sky-is-falling prognostications, while reminding everyone else of their own fallibility.

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