Global Economies Stabilizing After Downturn Caused by Brexit

Although the Brexit Referendum sent economies around the world into a steep dive, they seem to be rebounding much more quickly than expected. Investors have been buying more than selling this week. driving the US stock market higher three separate times. However, analysts have also noticed that US bond prices have surged, which indicates that investors are less anxious about Brexit in the short-term, but still worried about its implications down the road. The members of the Associated Press of the LA Times describe in their article some of the ways in which the economy has shifted since Brexit, and what that may mean for the future.

Britain's departure from the EU, which dropped the value of the euro by over 10%, left economists worried that economies around the globe would quickly follow suit. Fortunately, after a significant downturn, most of the economies are bouncing back quickly. While the amount of investment in the US economy seems to be the same before and after Brexit, there has been a shift as to where investors are putting their money. Oil prices went down. Consumer staple companies and utility stocks, which are known as low-risk investments, have had increased demand.

Investors believe that Brexit in and of itself will not have enough of an effect on the US economy to be significant. However, they worry that if the trend becomes contagious, it will be difficult to combat the negative effects of several countries leaving the EU at once. Overall, though, the economy seems to be on track. The Nasdaq and Dow Jones both increased by 1.3%, and the stock market did well this quarter. Even the S&P 500 improved by 1.9% in the period between April and June. Analysts believe that most of the improvement comes from energy stocks, utilities, and telecom companies.

On Thursday, stock trading started slowly but soon began to rally at normal levels, which may signal that investors have decided to stop worrying about Brexit's effects, at least for the time being. Even the UK's stock market has recouped many losses since last week, due mainly to overseas companies benefiting from the reduced value of the local currency. Around the globe, economies are doing well, or at least not being significantly affected by Brexit. The pound and the euro are still losing value, with the former at faster rates than the latter, but both seem to be slowing. It could be that economists were right: if handled correctly, Britain leaving the EU might only have negative repercussions in the short-run, with unknown benefits in the long-term.

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Britain's Exit from the EU and its Effects on the Global Economy

This week, Great Britain voted on a referendum that concluded with their decision to leave the European Union. With that decision, the international financial markets became a sea of confusion and the pound hit its lowest value since 1985. The European Central Bank is worried about the negative consequences this landmark decision will have on the general population as the devaluation could cause a nation-wide panic. Jonathan Kaiman, Don Lee, and Julie Makinen discuss in their latest L.A. Times article some of these potential effects, not just to Britain's financial future, but to the world.

Early this morning, the voting results had begun to show a not insignificant push for the "leave" camp of British voters: 52% had voted for the United Kingdom to leave the European Union. While the difference of 4% between the two sides may seem small, it represents a shocking turn that many policy-makers didn't expect.  Apparently, the general populace would prefer to be independent, no longer under the rule of the EU. Why are the British people so adamant about leaving the European Union?

The "Brexit" (British exit) is based on three main issues: economics, immigration, and identity. Under current practice, the members of the EU have a common market with a shared form of currency that makes the economy run smoothly. However, the UK is forced to send a sum of money to Brussels (the headquarters of the EU) each year, where the money gets redistributed to other member states, which can help to stabilize their economies and hopefully induce growth. Many of the "leave group" don't want to pay extra taxes to support another country other than their homeland.

The immigration argument comes down to the fact that anyone from an EU-member country is legally able to move to the UK and get a job without needing a work visa. According to economists, this is good for the economy, filling necessary jobs and helping the local housing market. Many UK citizens are against the free immigration, however, because they believe that non-citizens are coming in and using up already limited public resources. Finally, many voters in Great Britain don't see themselves as "European." They prefer to identify themselves as British above all else and dislike many of the laws and regulations that come with being a member of the EU. In all, those supporting the Brexit do it because they want Britain to have control over its own governance again.

Unfortunately, many economists believe that the Brexit will lead to massive, irreversible economic downturn around the world. Already, the pound's value has gone down by over 10%, the price of oil has taken a dive, and even stocks in Asia have suffered. Investors throughout Europe and the US are preparing for the worst. As everything unfolds in the UK, even countries as far as Singapore are feeling the effects due to the high degree of uncertainty as to what will happen next. No one knows for sure, but economists believe that Britain will not be able to avoid a hard recession with economic output dropping by 1-6% in the coming years.

The abounding fear and uncertainty have more strongly affected Asian markets than anywhere else so far. Japan's Nikkei index dropped 7.5%, Hong Kong's 4.7%, and Shanghai's 2%. All of Asia's markets have been feeling the significant effects caused by the upcoming Brexit. Fortunately, analysts believe that the worst of the Brexit will negatively affect the Chinese economy, but only in the short-term. In fact, economists believe that the financial instability will benefit China in the long-run. As Britain leaves, the power of the euro will decline, which could give the Chinese renminbi (RMB) a chance to replace the euro as the world's second-most-powerful form of currency. However, as a whole, it is expected that the global economy will not do well over the coming months and years. Only time will tell how things will end.

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