Moody's warns Brexit to hit entire European economy

Credit agency Moody's has warned that a Brexit vote in the upcoming EU referendum would hit the entire European economy and have a "significant impact on confidence".

According to the agency's quarterly report on the outlook for the global economy the 23 June vote is one of a number of "unique challenges" facing the EU.

It added that Brexit was the "most immediate concern" and renewed its warning that if the UK voted to leave the EU, "prolonged uncertainty until alternative agreements emerge would be a cause for economic stress".

It added, however, that the EU also continued to struggle amid the biggest refugee influx in half a century, heightened security concerns, political impasse in Ireland and Spain and protests in France over proposed labour reforms.

In a report, earlier this month, Moody's claimed Brexit could trigger the collapse of the EU.

Moody's at the time, said the EU faced "significant vulnerabilities", adding "the question is when the system breaks, not if".

The latest report too projects an uncertain period for the world economy, with growth expected to remain below pre-financial crisis levels for "some time", hit by emerging market woes.

The agency also cut growth forecasts for the UK over the next two years as it downgraded prospects for advanced economies, which it said continued to suffer after the oil price rout that caused turmoil in the stock market at the start of the year.

Meanwhile, China's desire to hold up headline growth figures might raise the longer-term risks for the world's second-largest economy, Moody's said today.

Even as the ratings agency did not change the projected growth of 6.3 per cent for this year, it said headline growth continued to be supported by increasing amounts of debt which could lead to more problems down the road.

"Delivering target headline growth rates as the primary objective could come at a cost to the quality of growth due to further misallocation of resources, and limit the government's ability to address imbalances in the economy through implementation of reforms," authors Madhavi Bokil and Dima Cvetkova wrote.