The IMF said the UK's looming exit from the EU would hurt eurozone trade as the referendum result was "likely to lead to persistent uncertainty" regarding its future relationship with the bloc. "A slowdown in global growth could also undermine the recovery and raise the likelihood of stagnation," the IMF said in its latest evaluation of the eurozone. Financial markets and business confidence would also be hit, while slower growth would also mean inflation was likely to be weaker in the short to medium term. The IMF said rising euro scepticism had created "stark political divisions" in the bloc, hindering any "collective will to take crucial decisions for a stronger union", such as dealing with the refugee crisis.
It came as ratings agency Moody's warned that the rise of populism could "threaten the existence" of the eurozone and the wider EU, if anti-establishment movements gained traction ahead of elections in Germany and France next year. "In the long run, the potential strengthening of these movements could have detrimental implications for the continued cohesiveness of the EU and the euro area," it said. "The fragmentation of the EU could also encourage protectionist tendencies in a number of countries, and therefore seriously challenge, and ultimately reverse, the past few decades of increased globalisation... thwart the long-term growth prospects of individual economies and slow the catch-up of less developed countries." Moody's downgraded its UK growth forecast to 1.5pc this year and 1.2pc in 2017, from previous forecasts of 1.8pc and 2.1pc.
Growth across the eurozone would also be weaker, it said, though the impact of the Brexit vote on the US economy was expected to be limited.
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