Brexit : Global growth concerns

The impact looked  likely to spread far beyond Britain’s borders although European shares rose for the first time in three days after a heavy sell-off, partly due to hopes of a more co-ordinated central bank response to financial market losses.

Sterling also rose and Wall Street was expected to open up. European Central Bank President Mario Draghi said central banks around the world should aim to align monetary policies to mitigate “destabilizing spillovers” between economies. Shares in European banks have come under particular pressure, particularly those based in Britain, over doubts about future market access, and Italy, with high levels of bad loans. Sources said on Monday Italy was preparing to protect its banks from a destabilizing share sell-off following the Brexit vote and that Prime Minister Matteo Renzi would ask for more flexibility from the EU regarding public spending. Brexit creates huge political uncertainty and will put pressure on global growth, the International Monetary Fund (IMF)’s Deputy Managing Director Zhu Min said on Tuesday at the World Economic Forum in Tianjin in northern China. Asian stocks rose and Chinese stocks, protected by capital controls, hit a three-week closing high. Chinese Premier Li Keqiang sought to reassure investors by saying the country would not allow “roller-coaster” rides in capital markets. A key economic adviser to Japanese Prime Minister Shinzo Abe said the central bank should intervene if investors seeking safe havens drive the yen too high, but that he thought Brexit would have less of an impact in the long term. “I think currency and stock markets overreacted to the shock caused by Brexit. I think the real effects of Brexit will not be as big as people fear now,” he told Reuters. Trans-Atlantic alliance U.S. President Barack Obama took a similar line. “There’s been a little bit of hysteria post-Brexit vote, as if somehow NATO’s gone, the trans-Atlantic alliance is dissolving, and every country is rushing off to its own corner. That’s not what’s happening,” he told National Public Radio. In view of the disarray in Britain, some people questioned whether Brexit would happen at all. Nordea bank analysts gave it a likelihood of 70 percent and a senior EU official involved in the process said he thought the country may find a way never to announce its formal departure to the bloc. Dutch Prime Minister Mark Rutte said England had collapsed “politically, monetarily, constitutionally and economically”. “I would argue to give them some space.”