Important note: I am by no means any sort of economic
authority but am interested in the economics of Brexit.
As I wrote
about in my last blog post, before interning at Commerce, I knew little about
Commerce. However, it wasn’t until the results of the Brexit votes came in,
that I realized how much I have learned about the global economy and that I am
not as unaware as I once was. If someone had asked me about my thoughts on a
Brexit at this time last year, I would have responded: “Wow, all of my favorite
things come from the UK: Ellie Goulding, Hobnob cookies, good English tea.
European integration definitely seems important there.”
When I was
in meeting on Global Markets on Wednesday of last week (the day before the
vote), two fellows from the Council of Foreign Relations were discussing the
potential implications of Brexit but they both concluded that it seemed less
than likely that the “leave” camp would win the referendum vote. This seemed to
be a common sentiment of those around me on that Wednesday; people thinking
“that would be crazy if that happened, but it probably won’t.” Just around 24
hours later, voters in the UK would make fools out of those of us who just
didn’t believe it could happen.
I have been
asked a few times this week about what economists at work are saying and what
does this mean for us, and what does this mean for the UK. And after attending
an event this morning presented by Joseph Lake from The Economist Intelligence
Unit, I feel like I can put some thoughts down about what I have learned so
far.
1. Leaving
is about more than racism and xenophobia.
Yes, while leaving the EU has significant implications for
the immigration policies of the UK, there are many reasons that were presented
for wanting to leave. We are seeing this growing sense of nationalism around
the world and it definitely reared its head in the UK in the June 23rd
Referendum vote. To some, leaving the EU is an act of “taking back” what had
been “taken away”, splitting voters between the young and old, the urban and
rural, and the nationalist and internationalist. The irony in this vote is that
the younger a voter is, the more likely they were to vote to stay in the EU;
however, that young voter is forced to live with the consequences of the vote
for a much longer time, on average.
2. The long-term political consequences are
still unknown.
The “contagion effect” of other EU countries potentially
holding similar votes has now increased with the Brexit with The Economist
predicting that in the next two years the Netherlands, Denmark, and France
could hold similar votes. If Nexit, Dexit, and Frexit occur, this could lead to
a breakup of the Euro zone (yikes.) Scotland could be looking at a second
referendum for independence, as they all voted to remain in the EU. And Ireland
could be reunited if Northern Ireland also feels the desire to part ways with
England, Scotland, and Wales. Also, Boris Johnson could potentially be the next
Prime Minister of the UK.
3. The Economist Intelligence Unit (EIU)
predicts a large economic hit to the UK from 2017-2020.
EIU has predicted a UK recession in 2017 with a sharp rise
in unemployment. Financial firms will continue to leave London and will move to
Dublin, Berlin, Paris, Frankfurt, etc. In addition, this will affect the US
market in slowing economic growth in 2016 and 2017. The volatility and
uncertainty of the market will lead to decreases in investment which will also
have implications for businesses and consumers. The forecast for global GDP
growth has also been cut by $200 billion as a result of Brexit. (As a note:
$200 billion is the size of the economy of Vietnam or Portugal. If not obvious,
this is pretty significant.)
4. “But Merritt, does this have implications
for the 2016 US Presidential Election?!?!?” EIU says it does not.
Even with the rise of nationalism on a global scale, EIU
predicts that Democrats will win the Presidency and Senate in November. Clinton
is predicted to beat Trump through attracting a broader demographic and
appealing more to the middle ground voter. However, EIU also predicts that
Clinton will only serve one term with a Republican being elected in 2020. They
predict the next recession to occur in 2019, which in the second half of the
Clinton presidency, does not bode well for reelection. However, the Clinton
presidency could be characterized by business friendly policies, legislative
gridlock, hawkish foreign policy, and more equitable social policies.
5. There is talk of a “re-do” referendum vote
in the UK? Will it happen?
From a democratic standpoint, it shouldn’t. Even though
there is a petition circulating for one, telling 52% of the voters that the
“chose wrong” kind of defeats the purpose of a vote.
6. How is America looking post-Brexit?
Economic forecasting is still looking pretty good for the
next few years in America. We are reaching near full employment, which is
giving employees more wage bargaining power so people are more employed and
making more money than a few years ago. Also, something really important to
know about US GDP is that it is upheld mostly by consumer spending (2/3 of
total) so as long as people have money to spend, GDP is not going to tank even
if business investment and exports did. The Dollar is also now projected to be
stronger against the Euro and Sterling than it was before Brexit.
Conclusion: There are many predictions of what is to come
for UK, the EU, and the global economy… BUT this is an unprecedented mess. So, continue to follow the news closely
for more information.
