Investing.com – In a widely expected move, the International Monetary Fund (IMF) cut its global growth forecasts for the next two years on Tuesday and warned of the danger associated with the U.K. voting to leave the European Union (EU), known as a Brexit, when it votes on the membership referendum on June 23.
In an update to its World Economic Outlook, the IMF downgraded its forecast for global growth to 3.2% this year and 3.5% in 2017 from the prior estimates of 3.4% and 3.6%, respectively, in January.
The IMF insisted that the global economy was fragile and suggested that governments worldwide should prepare a collective response to prepare for the case of recession.
It further noted that slowing growth and reduced potential output will increase the risk of widespread stagnation and weaker growth.
The IMF also reiterated that a Brexit remained a major risk that could cause severe economic and political damage not only to Europe but that could also spill over into the world economy.
IMF forecast updates for individual regions
Furthermore, the IMF cut its forecast for the U.S. economy to 2.4% in 2016 and reduced its estimate for the euro zone to 1.5% growth for this year, compared to the prior estimates of 2.6% and 1.7%, respectively.
With regard to the U.K., the IMF now predicts GDP growth to tally in at 1.9% this year. That compared to the expansion of 2.2% that was predicted in January.
However, the Fund left the forecast for an expansion of 2.2% in 2017 unchanged .
Additionally, the IMF cut it's 2016 GDP growth forecast for Japan in half to an expansion of 0.5%, from the previous estimate of 1.0%.
To the contrary, the Fund raised its GDP growth estimate for China to 6.5% in 2016, from the January projection of 6.3%.
IMF gives central banks policy suggestions
Weighing in on central banks, the IMF suggested that the global world economy needed monetary stimulus and warned that the Federal Reserve’s (Fed) hikes should be smooth and well-communicated.
It suggested that the Bank of Japan (BoJ) should move to a more forecast-based monetary policy.
The Fund also advised the European Central Bank (ECB) to maintain an accommodative stance for an extended period, but should be ready to use other tools.
Market reaction muted to expected results
The update to estimates had little affect on major asset classes.
U.S. stock futures continued to register small gains. The Dow futures pointed to a gain of 11 points, or 0.06%, the S&P 500 futures indicated a rise of 2 points, or 0.11%, while the Nasdaq 100 futures increased 3 points, or 0.06%.
In European stock markets, London’s FTSE 100 edged forward 0.26%, the Euro Stoxx 50 slipped 0.08%, France's CAC 40 inched up 0.05%, while Germany's DAX advanced 0.26%.
The US dollar index, which tracks the greenback against a basket of six major rivals, was at 94.06, compared to 94.09 ahead of the report.
Elsewhere, in the commodities market, gold futures traded unchanged at $1,262.00 a troy ounce, while crude oil traded at $40.55 a barrel from $40.59 earlier.