Brexit and its Aftermath: Economic Impact and Political Repercussions By Dr Yeo Lay Hwee Director, EU Centre in Singapore
Member states of the European Union Candidate countries
* Breakdown of how Leave Remain the nations voted & voters turnout Total votes 17,410,742 (51.9%) 16,141,241 (48.1%) England (73%) 15,188,406 (53.4%) 13,266,996 (46.6%) Wales (71.1%) 843,572 (52.5%) 772,347 (47.5%) Scotland ( 67.5%) 1,018,322 (38%) 1,611,191 (62%) Nth Ireland (62.9%) 349,442 (44.2%) 440,437 (55.8%)
Member states of
* * US$2.1 trillion dollars wiped out in the global market (in a day) * The pound crashed and cratered to its lowest in 31 years. Euro dropped 4% against USD. * The FTSE fell by more than 8% (largest single day drop since the 2008 GFC) * A few days later, S&P and Moody’s downgrade Britain’s triple A rating. In the short term, Brexit will affect mainly currency and stock markets more than real economy, but still there are real economic repercussions being felt.
* Economic repercussions on the UK crystallising : * Property prices drop (some say at least 20% - signs that investors are rushing to pull out money out of UK property, particularly commercial property); * Construction sector (which has already shown signs of slowing will decelerate even faster) * Households will defer consumption because of uncertainties and less money due to drop in value of the pound; * Investments put on hold; * Some companies (particularly those serving the European market) will pull out of UK to relocate to Continental Europe (eg, Ryanair – planning to move its British hub to the continent) * London as a financial centre likely to suffer as trading shift away from London. Already alternative financial centres competing to welcome bankers and financial services (Paris, Luxembourg, Dublin, etc) * Banking crisis in the UK likely – and the pain will spread to banks in the EU.
* * Britons are already worse off because of the lower value of the pound – value of assets slashed, higher import prices to follow. (Positive – cheaper exports?) * Price of property to fall – good / bad? * Britain’s economy to slow down as investments decisions are put on hold until a deal is struck between UK and the EU. * Political instability and legal uncertainties – bad for investments. In the medium term, it is less about the financial markets, and more about the real economy – within UK, a pall of uncertainty is likely to be case over businesses’ decisions on whether to hire people, or make capital investments, or whether to stay in Britain or move to continental Europe. IMF had already revised economic growth figures downward for both UK and the Eurozone. In fact, general consensus that UK likely to slip into recession.
* Political implications for the UK: * A polarised UK almost ungovernable for years to come? (look at the different faultlines) * A disintegrating UK? Disunited Kingdom / From Great Britain to Little England? * Does Brexit signal the triumph of identity over economics; a triumph for populist politics, racism, xenophobia, and rise of anti-globalisation sentiments? (look out for election results in next year’s elections in France and Germany). * Would Brexit bring about the end of economic integration and openness, and bring about protectionism and end of free trade (fair trade?)
* Political implications for the EU: * Brexit (and other crises) - an enormous blow to credibility of the EU and the attractiveness of EU’s integration model. * Brexit already made EU “smaller” – minus 65m consumers / 2.3 trillion € in GDP; UK – a nuclear power & member of UNSC * Departure of the UK – would it herald a less outward looking EU? * Would Brexit bring about the disintegration of the EU? Populist surge in Europe, rise in euroskepticism, anti- immigration sentiments, and right wing extremist violence? * Some hope that the shock of Brexit would bring about reforms and reimagining of the EU for the better. * What kind of Europe?
* Geopolitical / Strategic implications * Brexit vote rattles the future of postwar world order fashioned by the US and its Western allies, in particular the UK. Would this unravel? Already under challenge from emerging powers – would Brexit deliver that body blow to the Western-centric global order? * Future of the transatlantic partnership – what would US- Europe relations look like without the UK? * What kind of “world order” – can Europe still be one of the poles? * How would Brexit impact EU’s relations with key Asian powers?
* Still too early to say how events will unfold in the wake of Britain’s decision to leave the EU. As DPM Tharman said, we can expect repeated bouts of volatility in financial markets as uncertainties during the negotiations of a “new deal” weigh in on the UK, Europe and the global economy. These uncertainties are certain to dampen growth. A pessimistic state of affairs cannot to ruled out if Brexit indeed marks a shift towards protectionist policies, a rise in chauvinistic nationalism and the disintegration of the UK and the EU. We can try and sketch some possible scenarios, but what happen over the long term is really very unpredictable. Much will depends on the UK-EU negotiations, the final deal that emerges, and many other regional and global events that are happening at the same time.
* 5 th largest economy in the world, 2 nd largest in the EU measured by nominal GDP . Comprised 4% of global GDP ( 16% of the EU’s GDP ) UK’s trade with other EU countries – 44% of exports & 53% of imports EU is a major source of inward investments into the UK. In 2014, UK received ₤496b of the stock of inward FDI from other EU countries (48% of total). However, in terms of FDI flows, the EU accounted for only 19% of net FDI flows GDP by sector: Services (78.4%); Production (14.6%); Construction (6.4%); Agriculture (0.6%) GDP growth: 2.1% (est for 2016) Unemployment: 5% ( An estimate of 3.5 m jobs are linked to UK’s trade with the EU) Public Debt: ₤1.58 trillion (82.8% of GDP) Foreign reserves: US$159.34 billion
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* • EU-China trade has increased dramatically in recent years. China is the EU's biggest source of imports by far, and has also become one of the EU's fastest growing export markets. The EU has also become China’s biggest source of imports. China and Europe now trade well over € 1 billion a day. • EU imports from China are dominated by industrial and consumer goods: machinery and equipment, footwear and clothing, furniture and lamps, and toys. EU exports to China are concentrated on machinery and equipment, motor vehicles, aircraft, and chemicals. • Bilateral trade in services, however, only amounts to 1/10 of total trade in goods, and the EU's exports of services only amount to 20% of EU's exports of goods. • As a result, the EU records a significant trade deficit with China. This is in part a reflection of global and Asian value chains, but in part also due to remaining market access barriers in China. • Investment flows also show vast untapped potential, especially when taking into account the size of our respective economies. China accounts for just 2-3% of overall European investments abroad, whereas Chinese investments in Europe are rising, but from an even lower base. Source: European Commission
* • In 2014, UK exports to China were worth £18.7 billion. Imports from China were £38.3 billion. The UK had a trade deficit of £19.6 billion with China. • The UK had a surplus with China on trade in services, outweighed by a deficit on trade in goods. • China accounts for 3.6% of UK exports and 7.0% of all UK imports. • China is the 7th largest export market for the UK and the 3rd largest source of imports. Source: Statistics on UK trade with China
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* • The EU is India's largest trading partner, accounting for 13% of India's overall trade, ahead of China (9.6%) and the United States (8.5%). India is the EU's 9th largest partner, with the value of EU exports to India amounting to € 38.1 billion in 2015. The total value of EU-India trade stood at € 77.5 billion in 2015. • Major EU exports to India include engineering goods, which represents 37% of total export value to India, gems and jewellery (21%) and chemical and allied products (10%). The primary EU imports include textiles and clothing (19.6% of total import value from India), chemical and allied products (14.9%) and engineering goods (14.9%). • Trade in commercial services between the EU and India has quadrupled in the past decade, increasing from € 5.2 billion in 2002 to € 24.4 billion in 2014. In 2014 the EU € exported services worth 12.3 billion (top three sectors: transport, telecommunication and travel), while it imported € 12.1 billion (top three sectors: telecommunications, computer and information). • The EU is also the largest investor in India, with investment stock valued at € 38.5 billion in 2014, and is the primary destination for Indian foreign investment. Source: European Commission
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