Draghi sees Brexit vote hitting euro zone growth by up to 0.5 percent over 3 years - official

By Noah Barkin and Francesco Guarascio

BERLIN (Reuters) - European Central Bank President Mario Draghi told EU leaders on Tuesday that Britain's decision to leave the EU could reduce euro zone growth by a cumulative 0.3 to 0.5 percent compared to previous estimates over the next three years, an EU official said.

Earlier this month, before Britain's June 23 EU referendum, the ECB estimated that the euro zone would grow in annual terms by 1.6 percent in 2016 and by 1.7 percent in 2017 and 2018.

Growth would be reduced by a likely slowdown in Britain and by resulting slump in trade with the UK, one of the main commercial partners of the 19-country currency union, Draghi said.

Euro zone growth may also be affected by the higher cost of capital generated by lower stock prices, Draghi told the EU summit, according to the official.

Addressing the first gathering of the 28 EU heads of government since the referendum, Draghi also said there was a risk that people outside Europe might begin to view the EU as ungovernable after Brexit, the official said.

Draghi urged governments to address such fears with joint efforts and to deal with vulnerabilities in the banking sector.

He also reiterated his commitment to secure price stability and to cooperate with other central banks.

Draghi further told EU leaders that the composition of budgets should be more growth-friendly, the official said.

(Additional reporting by Francesco Canepa in Frankfurt; Editing by Paul Taylor and Mark Heinrich)