Following Britain's vote to exit the European Union, many economists predict a shock contraction of the UK’s economy. According to them, Brexit will dampen economic activity and will trigger a decline in the country’s gross domestic product. Some even claim it puts Britain at risk of recession.
But chief European economist at HSBC Karen Ward said that might be the good news. She revised down eurozone GDP growth forecast to 1% from 1.5%. But she also noted that the slowing growth would aggravate the problems that stood behind the vote for leaving the EU. She said Brexit may merely be a "precarious calm" before something worse happens.
"It's again a story of managing to keep the recovery hobbling along but due to much more stimulus both from the ECB and government spending. Less private sector expansion, more public sector expansion, and all the while we're just muddling through. We're not solving some of the key underlying problems, such as income inequality, high unemployment, and a disenfranchised youth — which is what is fuelling support for populist parties around Europe. And as we've seen with the UK last week those risks can materialize — so this remains a very precarious calm," she said.
