Moody's warns political contagion from Brexit vote could threaten EU's existence

Jessica Morris
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Moody's downgraded the Eurozone's growth forecasts (Source: Getty)

Moody's issued a stark warning that political spillovers from the Brexit vote could one day threaten the bloc's very existence and hit global economic growth.

It came as the credit ratings agency downgraded the Eurozone's growth forecasts to 1.5 per cent from 1.7 per cent this year, and to 1.3 per cent from 1.6 per cent in 2017.

"The downside risks to global growth stem... from the possibility that developments in the UK may give rise to increased political risk elsewhere in the EU," said Elena Duggar, an associate managing director at Moody's.

Read more: Would the City be better off in the long term outside the Single Market?

Stronger nationalistic and protectionist movements could threaten the EU's longer-term existence, it said. The trade bloc's fragmentation could also encourage protectionist tendencies in other countries, halting globalisation and curbing growth.

Madhavi Bokil, a vice president and senior analyst at Moody's, added: "The EU economy represents roughly a quarter of global gross domestic production, making it systemically important to the world economy and the US."

She continued: "Therefore, if the negative risks in the EU materialise, it would have a significant consequences for global trade and growth."

Moody's also cut the UK's growth outlook to 1.5 per cent from 1.8 per cent in 2016, and 1.2 per cent from 2.1 per cent the following year.

Read more: Whitehall shames itself with lack of Leave plan

Moody's cut Britain's Aa1 credit rating outlook to negative earlier this month, saying that the Brexit vote would herald "a prolonged period of uncertainty".

Rivals Standard & Poors subsequently stripped the UK of its gold standard triple-A rating, while another agency, Fitch, downgraded it to AA from AA+ with a negative outlook.

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