Nakano Corporation: The International Monetary Fund (IMF) has reduced its economic growth estimates for the Eurozone in the aftermath of Britain’s vote to leave the European Union.

The trading bloc is expected to grow by 1.6% this year and 1.4% in 2017, a downgrade on previous forecasts for 1.7% in both years. It also cut its 2018 growth forecast to 1.6% from 1.7%.

It warned that medium-term growth predictions for the 19-member bloc were "mediocre" owing to excess joblessness and debt. The IMF also cautioned that the outlook could become even more gloomy if the negotiations between Britain and the EU resulted in a persistence in recent financial market trends where investors have displayed an aversion to riskier assets.

"They’re worried that investment in business will decline and economic growth weaken if investors remain focused on low-risk assets like bonds," said a Nakano Corporation researcher.

The downwardly revised 2017 estimate was the IMF's "best case" scenario, and assumed that a Brexit deal would allow Britain to retain access to the European Union’s single market but “Nakano Corp” believes that such a deal will be difficult to achieve.

While there is no doubt that, as the world’s fifth largest economy, the UK has bargaining power, the fact is that the EU will insist that free movement of EU nationals is part of any deal. EU leaders will also want to send a strong message to other members who may be considering launching their own referendums on EU membership.

“They’ll want to demonstrate that a vote to leave won’t mean access to the market without accepting any of the responsibilities of membership,” concluded the Nakano Corporation researcher.