New Delhi: Britain's exit from the European Union is likely to result in lower economic growth of the UK, Moody's Investors Service said while lowering its growth projections.
"We expect the vote to leave the EU to result in significant negative impact on UK growth. Our revised baseline growth expectation for the UK is 1.5 per cent in 2016 and 1.2 per cent in 2017, compared with previous estimates of 1.8 per cent and 2.1 per cent respectively," Moody's said in a report on Friday.
Lower growth is expected to be primarily driven by a precipitous fall in investment. "At the same time, the fall in the sterling will mitigate some of the negative effect in the short term by providing a boost to exports," it said.
Moody's said a material correction in asset prices, house price downturn or a large decline in consumption represent downside risks to the forecast, and if they materialize then it would prompt the rating agency to revise the baseline.
Stating that it expects limited spillovers to EU growth overall, Moody's said direct trade and real economy linkages between UK and the EU are asymmetric, with UK exposures to the European Union much larger than EU exposures to Britain.
While 48 per cent of UK exports go to the EU, only 7 per cent of the EU exports are destined for the UK. "Therefore, assuming manageable global financial markets turbulence, there will be limited spillovers to the large EU economies," it said.
Reflecting country-specific developments combined with limited spillovers from Brexit, Moody's has lowered its growth forecasts for Germany, France, Italy and Spain by 0.0 per cent-0.4 per cent.
"Overall, we have lowered our euro area growth expectations to 1.5 per cent for 2016 and 1.3 per cent for 2017, from 1.7 per cent and 1.6 per cent previously," it said. Moody's said the Brexit impact on US growth should be minimal.
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