Economic Manager Consequences of Brexit

Question: Discuss about the Economic Manager Consequences of Brexit. Answer: Introduction: Allen, Oltermann, Borger and Neslen (2015) say that the event of Brexit may impact the global economy as well as the British economy mostly in a negative way (Allen et al., 2015). The primary message that has been transmitted by the article is the drawbacks of Brexit, i.e. the consequences of the exit of Britain from the European Union. It is important to note that Britain is one of the supreme powers of the 28 European Union states. Along with that, the economy of the country is considered to be on a hike before the Brexit (Hutchens, 2016). Hence, the article written by Allen, Oltermann, Borger and Neslen present an argument on the consequences of Brexit and shows how the British economy and the global market will be impacted by the event. The impacts of Brexit are presented in five categories that are known as Jobs, Status in Europe Trade, Immigration, and Position in the World. The estimate starts with the net loss that will be faced by the UK economy (Kierzenkowski et al., 2016). Researchers from National Institute of Economic and Social Research found that exit of Britain from the EU will result in a decline in its GDP by 2.25 percent mainly because of impact on the foreign direct investment (Allen et al., 2015). On the other hand, Centre of Economic Performance estimated a fall of 6.3 to 9.5 percent in the GDP of the nation. Along with that, some of the people believe that Britain will grow as a sovereign power with the development of the economy and get relief from the overburden of EU rules and regulations. It has been estimated that the UK makes a benefit of 5 percent of GDP that amounts to 78 billion through the EU membership (Kierzenkowski et al., 2016). Along with that, Germany, Netherlands, France and Ireland are a major export market for the United Kingdom that will have a high level of negative impact on the UK economy after the Brexit (Allen et al., 2015). Hence, a primary impact can be seen in the trade of the nation. A diagram has been presented below for better understanding. Figure: UKs top ten export markets Source: (Allen et al., 2015) Hence, it can be seen from the above figure that the event will highly impact the trade of the nation. Furthermore, looking at the job opportunities, it can be seen that Clegg and Farage debate that EU provides jobs to 3 million British people in exchange for a market of 500 million consumers (Allen et al., 2015). Hence, the exit of Britain from the European Union will lead to a job loss of 3 million people. According to Gerry Grimstone, the UK will face a serious damage of Jobs and Economic growth by leaving the membership of EU. When immigration is considered, it can be seen that around 624,000 people immigrated to the UK in the year 2014 that was much higher than that of the year 2013 (Sharma, 2014). Most of these people belong to other countries than that of European Union nations. The EU free movement allows people to immigrate to the UK that increased by 43000 between 2013 and 2014 (Allen et al., 2015). Hence, the exit of the UK from the European Union will lead to racism in th e country and people coming to the nation for a better living might be considered as outsiders. It will become harder for a person to migrate to Britain because of the British national law (Schiermeier, 2016). The EU citizens will also face same problems such as border checks and long queues while entering the United Kingdom. Oltermann says that Brexit would diminish the status of the EU and the UK in the European continent. It has been believed by Cameron that the primary risk of Brexit is the few favours offered by other nations. Hence, Britain will be left with a single market access that will gradually impact the status of the country in the European continent. On the other hand, Neslen states that the impact on the GDP of the nation will have a downturn positioning in the World market (Allen et al., 2015). Furthermore, the changes in the trade regulations of the nation will impact its foreign direct investment that will further impact the position of the country in the world market. Hence, it can be seen that the article mainly discusses the negative impacts of Brexit on the UKs economic position in the long run (Smales, 2016). The long-term, as well as short-run impact of Brexit, can impose significant cost on the UK economy, EU economy and global economy. In the current scenario, the estimations of the UK referendum leaving the EU zone can cover up long-term negative impact on GDP and economic prospects. According to the article, the Brexit event can lead to a lower GDP of the UK by the year 2030. The estimated GDP prediction has shown that the GDP of the UK will be lower by 2.2% under the economic uncertainties. Based on convenient research on the economic perspective, the imposing cost of Brexit is much more than the GDP fall. The liabilities of the financial banking system will be increased as the spending power of the UK investors will go down. Along with that, the economic uncertainties and political turmoil may have posed additional challenges to the business resources (Rimmer, 2016). Being within the EU, the UK economy has received significant amount of money as a budgetary procedure. In case of Br exit, such EU budget will not be available to the UK economy. On the other side of the scenario, the trade policy, employment structure and economic growth model of the UK will suffer a great deal in case of Brexit event. Moreover, the EU regulations will be available in a new format providing latest economic challenges to the UK participants. Hence, misguided regulations and investment fear can create adverse economic condition in the UK market. Figure: Brexit and the cost on the UK, EU and Global Economy Source: (Coulter and Hanck, 2016) To justify the above mentioned discussion, the example of Lehman Brothers can be considered that gave the world economy a good lesson regarding financial crisis in the globalised market in the year 2008 (Tabernero and Ciardiello, 2016). A small event of bankruptcy led to financial crisis in the global market, whereas the Brexit is a much larger event that can cause unexpected harm to the global economy in the long run. Researchers forecast the fall in the GDP of the United Kingdom because it can be clearly seen that the foreign direct investment of the economy will fall after the Brexit event (Wright, 2016). The reduction in the immigration of outsiders, restriction in free trade and movement of people among the EU nations will harm the global trade and investment opportunities of the country. Furthermore, the exit of Britain from the EU will also impact the GDP of the EU nations. Hence, the event will led to a global financial crisis again in the future that is expected to heat the market between 2020 and 2030. Hence, it can be justified by saying that the Brexit event will make the UK pay costs for the political move from all perspective. Britain needs to face different consequences after exiting from the European Union. It can be seen through the article of Allen, Oltermann, Borger and Neslen (2015) that the chances of occurrence of negative impacts are more than that of positive growth (Allen et al., 2015). Now considering the general rules, it can be seen that if a country like Britain discriminate against the individual EU member states after the exit from the European Union membership, it will face same sort of discrimination from rest of the EU members. Hence, the free migration of people between the EU nations will stop for Britain that will gradually impact the trade and job opportunities for the United Kingdom. The question is quite controversial because it is difficult to decide whether the United Kingdom should co-operate with the European Union after the Brexit. In order to answer the question, the long run negative impacts of Brexit must be forecasted (Clery, 2016). It can be seen from the article that pessimist research shows that the UK will face a job loss of around 3 million because of exit from the European Union (Carter, 2016). On the other hand, people from other EU nation coming to Britain for their daily earning will also feel burden of this political drama after the UKs exit. It is important to note that the United Kingdom will turn into a separate nation with different rules that will create problem for the people going out and coming in for jobs. Along with that, Britain will also face trouble due to legal bounding on free trade among the EU nations (Tarran, 2016). Hence, the Brexit will lead to fall in trade and job opportunities that can be forecasted in the current situation. Hence, it is recommended to the UK government to cooperate with the EU in regards to immigration and trade policies to safeguard its economic balance (Carter, 2016). By cooperating with the EU, Britain can maintain a free migration policy among the EU nations that will stabilise the trade of the country. The forecasted loss of 2.2 percent in the GDP will not occur for Britain if the government cooperate with the European Union (Tarran, 2016). Furthermore, the cooperation of the British government will increase the status of the economy in Europe as well as across the globe. The decision of the United Kingdom to exit the European Union has unleashed significant market turmoil and global uncertainties. The economic uncertainties of the global market have triggered political indecisions slowing the industrial productivity. Considerably, the Australian economy will not be immune to the event of British exit from the 28-nation European Union. Meanwhile, the uncertainties on offshore markets can determine a large impact on the economic standards of Australia. Precisely, the Australian stock markets and currency market can experience a sharp fall in the near terms effect of British exit event. As the investors of the Australian market will move towards risk-off mentality, the stocks and Australian dollar can plunge in a certain amount unleashing economic uncertainty. Along with that, the event of Brexit can create an adverse impact on the bond yields. Due to safe heaven strategy, the investors will take out the money from the risk assets and stock markets push ing the bond yields even lower. Moreover, the Australian financial banking services will find it difficult to protect the massive offshore funding due to sharp fall in stock prices. On the other side, the sustainable fall in the Great Britain Pound (GBP) can create negative consequences to the people of Australia dealing in pensions and assets in the United Kingdom. Moreover, the pressure in the GBP will force the UK tourists to lower the spending power in Australia. Hence, in case of long-term perspective the tourism industry of Australia will see a considerable downfall. In terms of Australias future trade perspective, the event of Brexit will bring adverse impact to the Australian economy. As the export of Australia has significantly contributed to the GDP growth of the country, exports to the UK market may seen a downfall with the latest consequences (Plumer, 2016). Currently, the United Kingdom is the seventh largest trade partner of Australia. Therefore, the Brexit event can force the export to get lower. Thus, there will be issues regarding unemployment and economic slowdown in the Australian economy. In the current situation, the majority of federal gove rnments will not promote any structural changes to influence the adverse effect of Brexit in the Australian economy. Therefore, the current trade policies and trade relations with the Great Britain will trigger significant slowdown in the economy (Yeates, 2016). Furthermore, for investment perspective, significant headwinds must be faced as Australian dollar will fall in the sluggish economic uncertainty. In such situation, the Prime Minister of the country, Malcolm Turnbull must evaluate sustainable economic policies to assure the investors in the unsettled economic circumstances. Figure: Impact of Brexit on Australian GDP Growth Source: (Bongardt and Torres, 2016) In the above produced figure, the Australian GDP will seem to be dipping down due to the event of Brexit. Meanwhile, in worst case scenario, the Australian GP figure may touch below 2.5% figures in the next decade or so. The referendum of The Great Britain leaving the EU has developed sharp short period market volatility in the Australian market. Though economic experts have believed that the Australian economy is unlikely face any short-term challenges, long-term economic uncertainties are on the cards (Tatham, 2016). The political links and intermediate renegotiation trade policy tactics of Britain may have mitigate some of the market challenges. Moreover, the free trade agreement talks between the European Union and Australia will be significantly delayed to the adverse consequences of Brexit. Now, the Australian federal government has to deal with Britain in a separate way due to the referendum of Britain leaving the EU. Invariably, in recent developments, the Australian investor s must have been reassured by the government so that the market uncertainties and fear among the investors can be reduced to a sustainable level. The Brexit referendum and pro-Brexit events will develop significant changes in the current global economic scenario. Nevertheless, being one of the most influential members of the European Union, the position of Great Britain would matter a lot in for the global economy. As the majority of people of Britain have voted for leaving the European Union, the foreign policies, trade relations, migration policy, and global job market and business environment will have been changed quantifying the economic effect of the event. First of all, the massive downfall of GBP has created significant fear among the investors (Birkinshaw and Biondi, 2016). As a result of scenario, global economic crisis can plunge the existing global market growth. Moreover, the negative sentiment of stock investors can create an adverse impact on the global economy as the liquidity will be dried up from the market all over the world. Additionally, the sceptical version of Brexit referendum may develop historical mar ket scenario such as Lehman Brothers in 2008. During the period of 2008, the world economy has noticed the worst ever financial crisis situation (Learner, 2016). The global commodity market, equities, stock markets, bond markets, currency markets, housing industry, mortgage industry and financial banking companies had faced unmanageable losses in the global crisis during 2008-2009. If a single event can cause such drastic global turmoil situations, the Brexit event can contribute to a major downturn of global economy. Figure: The Economic Impact of Brexit Source: (Birkinshaw and Biondi, 2016) In accessing the impact on the UK market, by 2020 UK GDP may see a downfall to -3.1% as shown in above figure. As the bilateral trade relations with the UK and other countries have been restricted with such political event, the market proposition and GDP growth of the global economy will be considerable hampered. Adversely, the spending power cuts and immigration regulations of the UK area can create fresh challenges to the global economy (Allen et al., 2015). As the global investors will focus on new investment routes in the economic uncertainties, the liquidity can be washed up from the global market creating financial crisis. In this regard, the biggest economies of the world such as the United States of America, China and other European countries must face new economic headwinds (Godlee, 2016). The pressure of the stock market and commodity prices can force the leaders to take actions. In current scenario, the debt situations of the US federal government will not allow the Centra l Bank of America to issue fresh bond-buying activities to inject fresh liquidity. As a result of the same, more economic crisis will be on the cards in near future. Figure: Potential Change in Eurozone area due to Brexit Source: (Ellison, 2016) Substantially, the event of Brexit can put a break on the EU zone investment as the investment will drop down to 2.8% in 2017 and 2018. In context to the broader market scenario, till now, the EU has been treated as a single market to the rest of the world. The event of Brexit will now force the economies to make significant changes in the trade policies and develop new regulations as per the latest developments. Therefore, more challenges can be established in the trading scenario linked to Britain and the European Union (Farr, 2016). The limitations of trade channels can be the biggest loss to the global economy as the GDP output from the EU will be reduced substantially. The complication of the trading perspective and political uncertainties will create undoubted economic slowdown in the upcoming financial years. References Allen, K., Oltermann, P., Borger, J. and Neslen, A. (2015).Brexit what would happen if Britain left the EU?. [online] the Guardian. Available at: https://www.theguardian.com/politics/2015/may/14/brexit-what-would-happen-if-britain-left-eu-european-union-referendum-uk [Accessed Aug. 2016]. 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