Brexit triggers recession within 2016

ANDY RAIN

A general view over Millenium Bridge (bottom L), Saint Paul's Cathedral (top L) on a part of the financial district City of London in London, Britain, 15 August 2014. The British economy expanded 0.8 per cent quarter-on-quarter in the second quarter, data released 15 August showed, a day after the eurozone reported zero growth in the same period. Year-on-year growth was revised upward from 3.1 to 3.2 per cent. The second reading of gross domestic product (GDP) means Britain recovered all of the ground it lost in the 2008-09 financial crisis, with output 0.2 per cent above its pre-crisis peak in early 2008.

British Managers more pessimistic than the European Commission on growth projections


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Markit’s Purchasing Managers’ Index (PMI) in July is at its worst level since April 2009.

The European Commission’s forecast published on Tuesday suggests the British economy will slide into recession next year; British managers are more pessimistic. They think the British economy will be in technical recession within 2016.

The European Commission projected on Tuesday that the British GDP will surge by 1,3-to-1,6% in 2016; it projects 1.3% for 2017, down from a pre-Brexit 1.9% estimate. British managers estimate the economy will contract by 0.4% in the third quarter of 2016; if that continues in the fourth quarter, it would mean the British economy will enter a “technical recession” within 2016.

On the negative economic effects of Brexit, there is consensus. The only comparable level of slump was the 2008 Lehman brothers bankruptcy and the 1998 Asian Stock Markets crush.

Historically, the PMI indicator is accurate and is consulted by the Bank of England when it decides on monetary policy; it appears that further monetary easing should be expected in the U.K.

As a result, the pound continues to slide against the dollar on Friday, returning to a 31-year lows from which it had somewhat rebounded.

Last week commissioner for economic affairs, Pierre Moscovici, projected a cumulative negative impact for British GDP between 1-2,5% by 2017. British projection now hold this view to be somewhat optimistic and probably not scaremongering.

The European Commission on Tuesday projected that the result of the 23 June Brexit referendum “will affect not only the UK but also the rest of the EU economy through several transmission channels, mainly uncertainty, investment, trade and migration.”

GDP growth in the euro area is now estimated to slide to 1.6% in 2016 and 1.8% in 2017, slowing down recovery.

(Reuters, Bloomberg)

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