In World Economy News 10/10/2016
European Central Bank President Mario Draghi poured cold water on any hopes that Britain’s vote to leave the European Union would have negligible economic consequences.
Speaking Saturday at the International Monetary Fund, where global financial leaders have gathered for their semiannual meeting, Mr. Draghi said that a number of speakers had noted that the short-term effects of the Brexit vote “were less dramatic than people expected” both in financial-market terms and with respect to the real economy.
“Does it mean that there will be no effect?” Mr. Draghi asked. “The answer is no,” he said, adding, “we don’t know frankly what’s going to happen” over the medium term. “The event is very significant. To think that it won’t have any consequence would be to hope for too much,” he said at a news conference.
Mr. Draghi’s comments come days after the British pound took a sharp fall on financial markets, continuing a downward trend since Britain’s vote to leave the European Union. He joined his voice to many others who have commented in recent days about the risk that Britain’s vote on June 23 poses to the global economy.
U.K. Treasury chief Philip Hammond said Friday that the pound’s sharp fall and partial recovery was an example of the kind of market turbulence the U.K. can expect as it charts its exit from the EU.
“There will be ups, and there will be downs,” he said.
British Prime Minister Theresa May has said that she would begin the proceedings for the U.K. to leave the EU by March of next year and experts fear that a so-called “hard Brexit,” in which the U.K. gives up some access to the EU market in exchange for tighter control of its borders would weigh on Britain’s economy.
Mr. Draghi reiterated that ECB policy is helping to lift the inflation rate in the 19-country currency bloc, which has remained stubbornly low for a number of years. Asked if inflation would reach the central bank’s medium-term target of just below 2% in 2019, Mr. Draghi said “our current macroeconomic projections foresee that, that our inflation rate will pick up during the course of 2017 and then will continue moving in 2018 towards the objective of an inflation rate which is close but below 2%.” He said that “this is predicated on maintaining the extraordinary support of our monetary policy.””
ECB Executive Board member Yves Mersch earlier in the week said that “When our next set of projections, which includes 2019, is published in December we might be broadly in line with our mandate of below, but close to, 2% over the medium term.”
Inflation in the 19-country currency bloc was most recently measured at 0.4%. It has been below target for over three years.
Source: Dow Jones
