How Brexit Will Impact Global Economies
Although it has been a number of weeks since Britain chose to exit the European Union, its true impact has yet to be felt. Yes, there were some initial dramatics as investors lost confidence, but these soon stabilised, and although levels may not have entirely recovered, the impact of Brexit today is less marked than one might have expected.
This is largely down to the reality of the situation. As it stands, Britain has yet to formally exit the European Union, so its existing trade agreements and world standing remain intact. To look at the impact of Brexit remains, at this moment, pure conjecture.
Yet hypothesise we will. Here, we consider three key areas, and how Brexit is likely to affect them, and the global economies they power…
Trade and Manufacturing
One of the first factors to look at when we consider Brexit’s likely impact on global economies is how it will affect trade and manufacturing. As it stands, around half of all exported British goods end up in the European Union. This number increases again if we add in the countries that the U.K. has free agreements with because of its place in the collective, so that 63 per cent of Britain’s goods exports are directly linked to its membership.
This means that Brexit leaves open the opportunity for new trade deals to be negotiated, and for other countries to potentially step into the now open role of key trading partner to the world’s fifth largest economy. With nations including Australia already vying for primacy, this has the potential to significantly boost the GDP of some global economies, whilst reducing those of the U.K.’s former key trading partners.
Its import industry, and the export industries of other nations, are likely to be similarly affected.
Financial Services and the City
One of the most immediately hard-hit sectors of the British economy and many global economies post-Brexit was the City. Although it’s competitive advantage derives from far more diverse sources than its unfettered access to the single market, the stock exchange took a real hit, and brokers like ETX Capital saw sterling fall to a 31-year low. Japan and many other nations were similarly impacted, and the currency markets and global stock exchanges were thrown into turmoil. Despite this, a significant recovery has already been made, and although the pound may have lost its edge, it remains a dominant world currency.
Finally, let’s take a look at how Brexit will impact foreign investment. Although the idea of it drying up has caused a great deal of panic, recent research by the Bank of England indicated that investment has not ceased, and nor have hiring plans changed amongst domestic and foreign businesses. Although access to the single market will no longer be an incentive for overseas enterprises to invest, most will continue to seek a foothold in the country, and the reality is that it could become a haven for foreign direct investment once released from the strict regulations imposed by the European Union.
To conclude, the impact of Brexit up to this point has been surprisingly limited, and although we cannot know its full effect until a true exit has taken place, Britain will almost certainly reassert itself on the global stage. For those economies allied with it, it therefore remains a much sought-after partner, and one not to be dismissed.