IMF Cuts Global Growth Outlook Post Brexit, CNBC Reports

Chief Economist at the IMF, Maurice Obstfeld, joined CNBC's "Squawk on the Street" to discuss the IMF's recent report to cut global growth outlook.
By Giovanni Bruno ,

NEW YORK (TheStreet) --The International Monetary Fund has cut its global growth outlook today, citing Brexit as the main driver of the decision. The fund now expects the global economy to grow 3.1% and that is down 0.1% from April's prediction, CNBC's Sara Eisen reported this morning.

Author of the report and the chief economist at the IMF, Maurice Obstfeld, joined CNBC's "Squawk on the Street" to discuss the cut and provide an economic outlook domestically and abroad.

"As of June 22 the IMF was prepared to upgrade its global growth forecast for 2016 and 2017, however when the Brexit referendum was passed that was thrown awry," Eisen said.

Eisen then asked Obstfeld to comment on why then, he feels that the markets have seen record highs post-referendum.

"Stocks are responding to other things, one of which, the prospect that central banks maintain interest rates lower for longer as a result of Brexit. Based on the data we have its just too early to tell how this will play out," Obstfeld said.

As to what specifically concerns him about any potential negative impact the economy may face, thus impacting the global growth, Obstfeld cited an increased level of uncertainty.

"There are a number of pre-existing risks in the global economy Brexit uncertainty gets superimposed on. The fear is that if things go badly we will start to see more negative data than expected, markets might react strongly, and the increasing possibility of negative feedback," Obstfeld explained.

Obstfeld then went on to discuss what he sees from emerging markets versus low income markets and their impact on the global economy.

"The general picture we see is of emerging markets that are actually doing a little better, and low income economies doing worse. But there's a lot of diversity. In the low income group, Nigeria and South Africa weigh very heavily on that average. Conversely, in emerging markets we see surprising positive developments, in Russia and Brazil," Obstfeld noted.

In terms of the domestic economy, the U.S., Obstfeld said that it was not impacted at all in the IMF's baseline forecast. Leading him to comment on whether or not he felt it safe for Federal Reserve to increase interest rates.

"The Fed will have to weigh their data against international risks as they've been doing. As they get signals from the job market or from the price level US data, they will be reacting to that appropriately. Hard to say what's going to happen down the road," Obstfeld said.

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