ANALYSTS: Brexit will bring recession ... and contagion
We have never seen a set of analysts notes as negative and scary as these. Prior to Brexit, economists at the major banks expected the UK to continue growing, albeit at a slower pace, into the foreseeable future.
Post-EU referendum, the mood has changed suddenly. "Recession," "contagion," and "stagflation" are the words they're using now.
No need for further comment. Here are the lowlights:
Unemployment to hit 5.9% in 2017. "The UK economy is likely to enter a period of stagflation… This decision to leave the EU, in our view, will exacerbate current elevated levels of uncertainty and thus amplify already slowing economic momentum."
"A clear and co-ordinated strategy to safeguard the rest of the EU and the euro area does not look to be present. Some proposals have been suggested by EU politicians since the UK vote, but building a common European response seems difficult. Consequently, we would expect uncertainty to spread and, euro area confidence and domestic demand to fall. We estimate euro area GDP growth to drop in 2017 to +0.4% vs +1.8% in our previous baseline of a 'Remain scenario'."
"We have consistently argued that the implications of Brexit for the UK and sterling in particular are very negative given the country's large current account deficit financing needs. A period of exceptional uncertainty now starts for the UK."
"The economy will turn down quickly. Now the UK has voted to "Leave" the EU the only thing we know is that we know very little about where UK economic and political arrangements are heading. We do not even know what the geographical boundaries of the UK will look like in a few years. This uncertainty is likely to be prolonged and will lead investors - including residential investors - to postpone decisions. The economy will turn down quickly in our view. We can have little confidence in any point forecasts at the moment. The sign of the effect on the economy of today's vote is clearly negative given the economic uncertainty. But the size of the effect is less clear. That depends on the policy choices of the next few days: whether they fan or reduce fears.
"So this may shave off something in the region of 0.2ppts from the 1.5% growth we had been expecting in 2017. However, the impact could be larger if the UK goes down the route of a 'hard exit'. This might make a tougher reaction by the rest of the EU inevitable, in terms of raising trade barriers and restricting UK access to the single market, with bigger disruptions to the economy. The impact on GDP will be orders of magnitude greater if there is political contagion that causes bond yields to rise, particularly in the periphery.
That's 1.2pp below the 'remain' scenario.
"Brexit could shave a few tenths from US growth The decision for the UK to exit the European Union is another in a long string of confidence shocks, hitting an already vulnerable US and global economy."
Read more:
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.