Economic Impact and Political Repercussions By Dr Yeo Lay Hwee - - PowerPoint PPT Presentation

Brexit and its Aftermath: Economic Impact and Political Repercussions

By Dr Yeo Lay Hwee

Director, EU Centre in Singapore

Member states of the European Union Candidate countries

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Breakdown of how the nations voted & voters turnout

Leave Remain

Total votes 17,410,742 (51.9%) 16,141,241 (48.1%) England (73%) 15,188,406 (53.4%) 13,266,996 (46.6%) Wales (71.1%) 843,572 (52.5%) 772,347 (47.5%) Scotland ( 67.5%) 1,018,322 (38%) 1,611,191 (62%) Nth Ireland (62.9%) 349,442 (44.2%) 440,437 (55.8%)

Member states of

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*US$2.1 trillion dollars wiped out in the global

market (in a day)

*The pound crashed and cratered to its lowest in

31 years. Euro dropped 4% against USD.

*The FTSE fell by more than 8% (largest single

day drop since the 2008 GFC)

*A few days later, S&P and Moody’s downgrade

Britain’s triple A rating. In the short term, Brexit will affect mainly currency and stock markets more than real economy, but still there are real economic repercussions being felt.

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Economic repercussions on the UK crystallising:

* Property prices drop (some say at least 20% - signs that investors are rushing to

pull out money out of UK property, particularly commercial property);

* Construction sector (which has already shown signs of slowing will decelerate

even faster)

* Households will defer consumption because of uncertainties and less money due

to drop in value of the pound;

* Investments put on hold; * Some companies (particularly those serving the European market) will pull out

• f UK to relocate to Continental Europe (eg, Ryanair – planning to move its

British hub to the continent)

* London as a financial centre likely to suffer as trading shift away from London.

Already alternative financial centres competing to welcome bankers and financial services (Paris, Luxembourg, Dublin, etc)

* Banking crisis in the UK likely – and the pain will spread to banks in the EU.

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*Britons are already worse off because of the lower value of

the pound – value of assets slashed, higher import prices to

• follow. (Positive – cheaper exports?)

*Price of property to fall – good / bad? *Britain’s economy to slow down as investments decisions are

put on hold until a deal is struck between UK and the EU.

*Political instability and legal uncertainties – bad for

investments. In the medium term, it is less about the financial markets, and more about the real economy – within UK, a pall of uncertainty is likely to be case over businesses’ decisions

• n whether to hire people, or make capital investments, or

whether to stay in Britain or move to continental Europe. IMF had already revised economic growth figures downward for both UK and the Eurozone. In fact, general consensus that UK likely to slip into recession.

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Political implications for the UK:

*A polarised UK almost ungovernable for years to come?

(look at the different faultlines)

*A disintegrating UK? Disunited Kingdom / From Great

Britain to Little England?

*Does Brexit signal the triumph of identity over

economics; a triumph for populist politics, racism, xenophobia, and rise of anti-globalisation sentiments? (look out for election results in next year’s elections in France and Germany).

*Would Brexit bring about the end of economic

integration and openness, and bring about protectionism and end of free trade (fair trade?)

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Political implications for the EU:

*Brexit (and other crises) - an enormous blow to credibility of

the EU and the attractiveness of EU’s integration model.

*Brexit already made EU “smaller” – minus 65m consumers /

2.3 trillion € in GDP; UK – a nuclear power & member of UNSC

*Departure of the UK – would it herald a less outward looking

EU?

*Would Brexit bring about the disintegration of the EU?

Populist surge in Europe, rise in euroskepticism, anti- immigration sentiments, and right wing extremist violence?

*Some hope that the shock of Brexit would bring about reforms

and reimagining of the EU for the better.

*What kind of Europe?

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Geopolitical / Strategic implications

*Brexit vote rattles the future of postwar world order

fashioned by the US and its Western allies, in particular the UK. Would this unravel? Already under challenge from emerging powers – would Brexit deliver that body blow to the Western-centric global order?

*Future of the transatlantic partnership – what would US-

Europe relations look like without the UK?

*What kind of “world order” – can Europe still be one of

the poles?

*How would Brexit impact EU’s relations with key Asian

powers?

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Still too early to say how events will unfold in the wake

• f Britain’s decision to leave the EU. As DPM Tharman

said, we can expect repeated bouts of volatility in financial markets as uncertainties during the negotiations of a “new deal” weigh in on the UK, Europe and the global economy. These uncertainties are certain to dampen growth. A pessimistic state of affairs cannot to ruled out if Brexit indeed marks a shift towards protectionist policies, a rise in chauvinistic nationalism and the disintegration of the UK and the EU. We can try and sketch some possible scenarios, but what happen over the long term is really very unpredictable. Much will depends on the UK-EU negotiations, the final deal that emerges, and many other regional and global events that are happening at the same time.

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5th largest economy in the world, 2nd largest in the EU measured by nominal GDP . Comprised 4% of global GDP (16% of the EU’s GDP) UK’s trade with other EU countries – 44% of exports & 53% of imports EU is a major source of inward investments into the UK. In 2014, UK received ₤496b of the stock of inward FDI from other EU countries (48% of total). However, in terms of FDI flows, the EU accounted for

• nly 19% of net FDI flows

GDP by sector: Services (78.4%); Production (14.6%); Construction (6.4%); Agriculture (0.6%) GDP growth: 2.1% (est for 2016) Unemployment: 5% (An estimate of 3.5 m jobs are linked to UK’s trade with the EU) Public Debt: ₤1.58 trillion (82.8% of GDP) Foreign reserves: US$159.34 billion

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• EU-China trade has increased dramatically in recent years. China is the EU's biggest

source of imports by far, and has also become one of the EU's fastest growing export

• markets. The EU has also become China’s biggest source of imports. China and

Europe now trade well over €1 billion a day.

• EU imports from China are dominated by industrial and consumer goods: machinery

and equipment, footwear and clothing, furniture and lamps, and toys. EU exports to China are concentrated on machinery and equipment, motor vehicles, aircraft, and chemicals.

• Bilateral trade in services, however, only amounts to 1/10 of total trade in goods, and

the EU's exports of services only amount to 20% of EU's exports of goods.

• As a result, the EU records a significant trade deficit with China. This is in part a

reflection of global and Asian value chains, but in part also due to remaining market access barriers in China.

• Investment flows also show vast untapped potential, especially when taking into

account the size of our respective economies. China accounts for just 2-3% of overall European investments abroad, whereas Chinese investments in Europe are rising, but from an even lower base. Source: European Commission

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• In 2014, UK exports to China were worth £18.7 billion. Imports from China were

£38.3 billion. The UK had a trade deficit of £19.6 billion with China.

• The UK had a surplus with China on trade in services, outweighed by a deficit on

trade in goods.

• China accounts for 3.6% of UK exports and 7.0% of all UK imports.
• China is the 7th largest export market for the UK and the 3rd largest source of

imports. Source: Statistics on UK trade with China

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• The EU is India's largest trading partner, accounting for 13% of India's overall trade,

ahead of China (9.6%) and the United States (8.5%). India is the EU's 9th largest partner, with the value of EU exports to India amounting to €38.1 billion in 2015. The total value of EU-India trade stood at €77.5 billion in 2015.

• Major EU exports to India include engineering goods, which represents 37% of total

export value to India, gems and jewellery (21%) and chemical and allied products (10%). The primary EU imports include textiles and clothing (19.6% of total import value from India), chemical and allied products (14.9%) and engineering goods (14.9%).

• Trade in commercial services between the EU and India has quadrupled in the past

decade, increasing from €5.2 billion in 2002 to €24.4 billion in 2014. In 2014 the EU exported services worth € 12.3 billion (top three sectors: transport, telecommunication and travel), while it imported € 12.1 billion (top three sectors: telecommunications, computer and information).

• The EU is also the largest investor in India, with investment stock valued at €38.5

billion in 2014, and is the primary destination for Indian foreign investment. Source: European Commission

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• The UK is the third largest source of foreign direct investment in India, after

Mauritius and Singapore. And India is the third largest source of FDI (in terms of the number of projects) in the UK, after the US and France.

• Sector-wise distribution of FDI equity inflows received from UK for the period April

2000 to February 2014 is: Chemicals (Other Than Fertilizers) (27%) followed by Drugs & Pharmaceuticals (16%) and Food Processing Industries (15%) in the third place.

• Remittances from the UK to India are high. Remittances from the UK to India,

including unrecorded transfers through formal and informal channels, could be worth up to $3.9bn (£2.6bn). Source: BBC, British High Commission in New Delhi

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• The EU and South Korea are important trading partners. South Korea is the EU's 9th

largest export destination for goods, whereas the EU is South Korea's third largest export market.

• EU exports of goods to South Korea amounted to €47.9 billion in 2015, whereas

imports from South Korea totalled €42.3 billion. In terms of EU exports, the most important categories of products are machinery and appliances, transport equipment and chemical products. As far as EU imports from South Korea are concerned, the main product categories are machinery and appliances, transport equipment and plastics.

• The EU records a significant surplus in trade in services with South Korea. EU

exports of services to South Korea amounted to € 11.9 billion in 2014 , compared to imports of €6 billon.

• South Korean investments in the EU have increased substantially from €13.1 billion

in 2010 to €20.3 billion in 2014, Over the same period, EU investments in South Korea has now increased from €37.5 to €43.7 billion. Source: European Commission

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• Japan is the EU’s second biggest trading partner in Asia after China.
• Together the EU and Japan account for more than a third of the world's GDP.
• Japan remains a major trade partner for the EU and Europe is a very important

market for Japan. Japan is also a major investor in the EU.

• Imports from Japan to the EU are dominated by machinery, electrical machinery,

motor vehicles, optical and medical instruments, and chemicals.

• EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals,
• ptical and medical instruments, and electrical machinery.

Source: European Commission

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• British exports to Japan are worth an impressive £9.9 billion a year, pretty much

evenly split between goods and services, making Japan the UK's 7th largest market

• n a value added basis.
• The UK’s biggest visible exports are:
• machinery and mechanical appliances, boilers, nuclear reactors, power

generation equipment and vehicles

• chemicals, including medical and pharmaceutical products
• Financial services are the UK’s largest export of services to Japan, valued at £2.6

billion in 2013. Transportation and insurance are also significant, with a combined value of £0.8 billion. Other business services include legal, accounting, advertising and R&D.

• Japan is the second biggest market in the world for the UK in royalty and licensing

income, accounting for 10% of all such earnings. In 2014 Japan received 325,989 patent applications, of which 1,731 were from the UK. Source: UK Trade and Investment

2 4 6 8 10 12 14 16 18 20 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

UK exports in goods and services (£billion)

China Hong Kong, China India Japan South Korea 0.5 1 1.5 2 2.5 3 3.5 4 4.5 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

UK imports in goods and services (£billion)

China Hong Kong, China India Japan South Korea

Data source: ONS

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*EU is one of Singapore’s most important trading partner (top

3). In services trade, it is No.1, well ahead of US, China and Japan.

*Conversely, Singapore though small ranks 5th among EU’s Asian

trading partners (after China Japan, India and S Korea) . EU trades most with Singapore of all ASEAN countries.

*EU also the most significant source of FDI in Singapore: FDI

stock in 2012 was 28.8% far ahead of US’ share of 11.6% and Japan – 7.82%. Close to 10,000 EU companies are present in Singapore

*Singapore is the EU’s 5th largest external investor *Of all EU MS, Germany and Netherlands – top 2 trading

partners in goods. UK tops trade in services.

*Singapore investments in UK – primarily in property & tourism

related industries?

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*Negotiations launched in 2009 (after EU-ASEAN FTA

negotiations were suspended in 2009)

*16 Dec 2012 – negotiations concluded after many rounds *3rd quarter of 2013 – FTA initialled after legal scrubbing of

text

*Also the need for Partnership and Cooperation Agreement

(PCA) to be signed

*Process of ratification delayed after the EU sent the EUSFTA

to the European Court of Justice (ECJ) to decide on competency.

*Most recent development – ask to “renegotiate” the chapter

• n ISDS (Investor-State Dispute Settlement).