With two more days to go for the crucial referendum on Britain’s continuance in the European Union, speculation over its exit (Brexit) is making the global economy nervous and the unfolding situation is being closely watched, a top World Bank official has said.
“It’s clear that the discussion around Brexit is one of several factors that is contributing to uncertainty in the global economy,” Ayhan Kose, Director of the World Bank Group’s Development Prospects Group, told IANS in an e-mail interview.
Kose, however, did not comment on queries over Brexit’s possible impact on India. He said the event was being closely watched by the World Bank, though it does not want to speculate on the outcome.
The referendum is slated for June 23.
The World Bank, in its semi-annual Global Economic Prospect (GEP) report earlier this month, cited the UK referendum as among the risks to the global economic outlook.
“The debate surrounding the referendum on European Union membership has been accompanied by softening activity in the United Kingdom and lower confidence and pressure on the pound sterling,” the report said.
The UK government estimates that economic losses associated with leaving the European Union could amount to 6 per cent of GDP after two years in a scenario of severe financial disruption, and up to 9.5 per cent of GDP after 15 years in the absence of a negotiated bilateral trade agreement with the European Union.
The United Kingdom represents more than 15 per cent of European Union’s GDP (gross domestic product), 25 per cent of its financial services activity, and 30 per cent of its stock market capitalization.
The European Union, in turn, is a key export market and source of foreign direct investment for many emerging market and developing economies.
International trade and financial market spillovers could be significant — particularly for countries in Europe and Central Asia and Sub-Saharan Africa, the OECD (Organisation for Economic Co-operation and Development) and the World Bank have said in the past.
“Financial market volatility around a decision to leave the European Union could lead to heightened global risk aversion, hampering already weak capital flows to emerging market and developing economies,” the report said.