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World Bank economist: Brexit process to hold back 2017 growth in euro zone
Last Updated: 2017-01-12 06:23 | Xinhua
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The process of Britain applying for and negotiating an exit from the European Union (EU) will depress growth in the euro zone, the lead economist of the World Bank said on Wednesday.

Franziska Ohnsorge, lead economist of the World Bank, told Xinhua in London at a press conference for the launch of the bank's report Global Economic Prospects (GEP) that the Brexit process was one of the uncertainties facing the global economy for 2017.

"We expect euro area growth to be broadly flat. We do expect the whole process of Brexit, all the uncertainties and discussions around it, we do expect them to weigh on sentiment," said Ohnsorge, who was the lead author of the GEP report.

"It is one of the reasons why we do not expect a big pickup (in euro area growth) but with growth about 1.5 percent, it is still above potential, it is solid growth in the euro area."

Ohnsorge said the World Bank had been surprised about the resilience of Britain's economy in the wake of the Brexit vote, when many economists and business people had forecast economic difficulties.

"We have not expected financial markets to hold up so well, for confidence to hold up so well, and for activity to hold up so well. Part of that was, in our view the proactive response of the Bank of England and coordinated across central banks which has kept financial markets very calm," said Ohnsorge.

The Bank of England has reduced interest rates from 0.5 percent to 0.25 percent as a response to potential dangers of the Brexit vote and had also reawakened its dormant quantitative evasion program.

She said that the World Bank expected consumers and businesses in Britain to "become much more cautious in their spending decisions and in their investment plans especially" in 2017.

This could have a dampening effect on economic growth, forecast by the National Institute for Economic and Social Research on Wednesday as being 2 percent in 2016.

"And investment takes many months if not years to implement, so if they become more cautious now it may well be that there will be a lagging effect in investment,"said Ohnsorge.

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