Brexit: a regional political crisis

29th June 2016

Jean-Louis Richard, Senior Financial Analyst

The ballot boxes just emptied, the political planet is in turmoil. The range of possibilities is very wide. The idea of a new vote has been cast; some experts suggest a minimal exit of the European Union in order not to provoke a second referendum about the independence of Scotland, which would have good chances to end with the division of the United Kingdom. Logically London will have to negotiate its future European status; which will have to be approved by the parliaments of the remaining 27 countries of the Union, a fastidious process where the Brits will be at a disadvantage. The most likely is political uncertainty for several years.
Such an environment is not favorable for the economy; the result will be weaker, maybe even negative growth in the UK. In a poll published after the vote (Financial Times, June 27th 2016), a quarter of company leaders of Great-Britain consider freezing new hiring and a third reducing investments. The major commercial partners of the UK, the European countries, will be less affected. Considering it with a bit of distance, this European political crisis should not leave a strong mark on the worldwide economic growth. It is a regional political event, it should most likely not become a global economic one.

Jean-Louis Richard, Analyst at IAM.