DBRS Commentary: UK Vote on EU Membership Puts Global Growth at Risk

DBRS, Inc. has today released a commentary entitled "UK Vote on EU Membership Puts Global Growth at Risk." This is the third of three commentaries that DBRS has written on the impact of a possible British exit from the European Union following a referendum on June 23. This commentary addresses the impact on the global economy and discusses the following points:

• Market volatility in the run-up to the UK referendum on June 23 is a warning that a vote to leave the EU could have a severe effect on financial market stability. The short term consequences are likely to be a significant increase in market volatility and a further flight to safe haven assets. If short-lived, this would not likely result in downgrades.

• The risk is that a 'Leave' vote sparks persistent financial disruption and a shock to macroeconomic stability, resulting in slower global growth. Most economies are still recovering from the financial crisis, and spillovers from the vote could be destabilizing.

• The global policy response to a 'Leave' vote would likely entail a combination of limited fiscal and monetary stimulus and an extension of central bank swap lines or other measures to restore liquidity. This could drive down yields in high income economies, but may be insufficient to stabilize yields in weaker Eurozone countries or emerging markets. For all countries, the severity of the shock to interest rates and GDP growth, and the effectiveness of the policy response, will be important in determining debt sustainability.

The applicable methodology is Rating Sovereign Governments, which can be found on our website under Methodologies.

A copy of this commentary is available by clicking on the link under Related Research or by contacting us at info@dbrs.com.