Growth
Describe about the Economics For Managers for Kingdom from the European Union.
1. Brexit refers to the exit of united kingdom from the European Union. The European Union or EU ,which involves twenty-eight countries in its association, is an economic and political partnership that was formed after the second world war. It promotes free movement of goods and services among its member countries. In the year 2016, 52% of the voters in UK, voted to leave the European Union thereby leading to political and economic complications for UK and other countries (Curry 2016).
The article which assesses the case study of Brexit was published in the Guardian, dated 14th of may, 2015. The title of the articles was “ Brexit – what would happen if British left the EU?” by Julian Borger ,Katie Allen, Arthur Neslen , and Philip Oltermann. There have been various responses, regarding the exit of Britain from the European Union. People have shown mixed responses toward the consequences of Brexit. This article aims at discussing the impact of Brexit on growth, trade, jobs, immigration and position in the world.
Growth – As stated by Boulanger and Philippidis (2015), various attempts have been formulated to seek the effect of Brexit on the UK economy. Some economists are of the conclusion that the economy would suffer from this step, whereas, others are of the opinion that freedom from the rues and cost that came with EU membership would make Britain more prosperous. On an early estimation in 2004, that an exit would lead to a loss of 2.25% if UK GDP, Jonathan Portes, states out that the world economy has considerably changed in the past years. According to an analysis done by the Centre for Economic Performance (CEP), who are a part of the London school of economics, stated that consequence soft Brexit would lead to a fall of income ranging between 6.3% to 9.5% of GDP. By being under free trade agreement (FTA), there might be a reduced fall in GDP of the UK, that is 2.2%.
Thereby, it could be seen, that Brexit would lead to substantial costs on UK economy. The UK benefitted from being a member of te European union as far as 4.5 % of its GDP. It amount to £78 billion a year. A mixed opinion of Thinktank Open Europe states that where an exit leads to a 2.2% loss of GDP by 2030, on the other hand, UK enters into independent trade policies with the world. Therefore, it could be better off by 1.6% of GDP by 2030. According to the Centre for European Reform, though UK is the main contributor to the European union , a 0.6% of the nominal GDP, after Brexit uk would face pressure to replace EU funding and subsidies provided to the agricultural sector with domestic spending. According to Tim Congdon contradictingly UK is 11.5% of GDP worse off for being a member of the union (Brugge et al. 2016).
Jobs
Jobs – According to Nick Clegg, 3 million jobs in UK depends on the EU membership. According to some firms, Brexit would cause a significant loss as it helps in attracting foreign companies. When some firms decide to take their companies out , other firms like Nestle. Hyundai, Ford, and Goldman Sachs have planned to scale back to uk. Two sectors that hold a particular mention are the car and financial services. EU membership boosts UK businesses in the car industry and therefore, employment. This results from the funds and research development funds provided by EU. EU invests around 11 billion a year on research and development out of which 15 % is spent in UK. There are 250 foreign banks that holds an employment of 160,000 people in the UK.
The scenario shows that leaving EU would leave a serious impact on the economics growth and jobs in UK. Author Ryan Bourne states that politicians should stop misleading people by saying that 3 million jobs in UK are linked to the EU membership. He says that the jobs are associated with the trade which has little evidence to fall as of brexit. He also notes that labor market is flexible in nature, and it would adjust overtime (Dhingra et al. 2016).
Trade – According to Dorling (2016), where on one hand people like Farage makes the statement that withdrawing UK from the membership would enable Britain to focus on making strong independent trading nations with fast-growing markets such as Brazil and India, others are of the opinion that Brexit would leave a negative impact on trade as it would shut down UK’s most important market. According to the latest survey done by the British Chambers Of Commerce, 57% of the businesses are of the belief that being with the union would be positive. According to the office of national statistics data, there is a reduction in goods exported to EU and an increase in the goods exported to other countries in 2015. Iain Mansfield stated that UK would be beneficial by pursuin free trade with the with the world and it should engage with the organizations like G8, G20, and OECD. According to CBE, there is a tricky situation of negotiating trade after Brexit, as EU has 500 million consumers whereas, UK just has 65 million.
Immigration –According to the experts, British had access to single market befre the brexit took its toll. Citizens freely moved from one country to orher among the member countries of European union. With the formation of brexit, the scenario totally changed. The people of European union are equivalent to the people of trhe third world countries. Even they need to go through the same process of applying for visas as others. The migration could be purely regulated by British national law.in such consequences , immigration in UK would be much difficult than it was before. This would create a retaliation effect over the uk immigrants staying in the European unions. All these isssues create lots of problem for people on their work, wages and standard of living.
Trade
Status in Europe – As per Hume (2016), Brexit aims at diminishing the status of UK and EU in varying degrees. According to Roger Liddle, a single market would be beneficial for the country, than the costly, antisocial attributes of the Eurosceptic. According to an analysis, UK could overtake Germany as the most populous country by 2040, and can channel transatlantic influence as one of the EU’s biggest trading and political partners ,wheres, Tim Oliver of the center for transatlantic relations states his vision that UK would be the junior partner. This would lead the state to negotiate for free trade as a weak member.
On being compared with other with countries who were not associated with eu such as Switzerland and Norway, in the post-Brexit era, the UK has the little hard energy to export, and it has no land boundaries. Brexit would lessen the opportunities for future students to study in Britain. This would diminish the demand for British music, literature, and popular culture. Inequality, individualism, and civic distrust would result in national dissolution. If a continent looses its political and market share, managing them is quite difficult (Krause, Noth and Tonzer 2016).
Position in the world- Brexit would reduce rather than enhance the country’s position. According to the countries of the world, Brexit would result into unique changes once it breaks the ties with the European union. If it leaves EU, UK would be worse off. Countries like India is the most favorable country because of Brexit. According to India, it is easier to deal with individual countries rather than dealing with the group. The role in Indian psych is not always positive but is always distinct. China lacks these kinds of strategic relationships that persist between UK and India, therefore its more prone to view UK than part of European Trading Bloc. Countries like Washington has maintaind a strategic relationship, whereas, America believes that anything breaks the cohesion among its allies is not good (Koutrakos 2016 ).
Only time will unfold what the actual consequences may be. Regardless of whether Britain exits on a good or bad note, there will be a decrease in trade.
2. Brexit aims at UK leaving the association of EU. This would increase the prices of British exports and reduce the economic activities and production. Prices for imported goods and services would rise for British consumers. Future predictions stated that there would be a 0.6% drop in UK GDP by 2030, that what it would have been by being a member of the union. By being isolated the percentage of drop in GDP might even be increased to 3% by 2030 (Dhingra, Ottaviano and Sampson 2015).
A worse scenario would come up when there is a dynamic effect onthe export import activities of the country. With less trade, there would be less competition from international borders. This would result in callous nature of the companies to improve the quality of their goods. A lower increase in productivity would creep in which would reduce the long-term rate of economic growth. Analysis conducted by the economists at center for economics performance, states that with Brexit into action, UK might suffer a fall in income of the range 6.3 % to 9.5% of GDP (Fry 2016).
Immigration
Figure 1: fall in the demand for goods and services in UK
(source: as created by author)
In figure 1, AD1 and AS are the aggregate demand and supply curves for the exports of goods and services pre-Brexit. With the exit of UK from the European Union, there is a fall in the demand for exports as now; the goods are no more in a free market situation among the members of the EU. With the fall in aggregate demand, the demand curve shifts rightwards from AD1 to AD2. This decrease in demand results in a fall in the price level from P1 to P2 and fall in the GDP from Y1 to Y2. This figure illustrates the scenario of the effect of Brexit on the UK economy. Some optimistic are of the view that if free trade prevails, in spite of Brexit, then the fall of GDP would be much lesser as predicted.
With the fall in gdp rate, a negative impact over the economic and political situation of UK would be sen in coming future. The investors would dump different assets including shares and bonds. There would be a fall in the pound-dollar ratio. A rise in unemployment would creep in and te country might loose its financial status. There would be high chances of uncertainty over britain’s economic failure as people would demand less and companies would delay in taking investment decisions. Some industries like financial services, car industry, health care, energy, and telecommunications would be deeply affected by the ill effects of brexit, as stated by some economists (Kierzenkowski et al. 2016).
According to Wallace, Pollack and Young (2015), European Union was originated from the European Coal And Steel Community (ECSE) and European Economic Community (EEC) formed in 1951 and 1958. It was formed by six countries of Belgium, France, West Germany, Italy, Luxembourg, and Netherlands. The organization was named European union which is an association of twenty countries. Each of the countries which belongs the association is independent in nature, but they agree to the rules stated by the nations. EU it allows free movement of goods, capital, services and people between the countries. The EU economy generates a GDP of around 14.303 trillion according to IMF. The aim of the EU is to unify the whole western Europe, to create a unified market system as means of providing stability to the markets and prevent division amongst the unified colonies.
3. According to Bianchetti et al.(2016).On coming out of the association with European Union, a major issue grows that results in strict control over the immigrants of UK. Many people are concerned as this would hurt their jobs, wages, and quality of life. Post Brexit would remove the associations of free movement of people among the EU and the UK. This would lead to strict rules faced by the EU citizens as it would be faced by the third party nations. New regulations would be set that would need the proofs regarding the work, as income proof, time limit of stayand the intention of work. People who plan a longer stay would have to show an employment proof. The reasons for coming to UK were many. Some people had come as asylum seekers, they were attracted to better employment opportunities. Most of them who worked in low skilled workplace were poorly paid too. These people were even unaware abot the facilities provided to them they just came there as the working facilities in uk were much better than their homeplace. As stated by (Crafts 2016), the border between Northern Ireland and the Irish Republic would serve as the external source of entry EU immigrants to enter UK. Hence, more strict passport checkpoints and customs control would be initiated. With brexit into action, their would be a decrease in te labour supply for UK. This decrease in labour supply would poe a threat for the production services that are carried out in UK. Contastingly, economists like Farage, are of the opinion that the immigration level must be checked in UK by breaking ties with the European union.
Status in Europe
The number of immigrants from other EU countries has raised to 3.3 million. Whereas, nearly two million UK immigrants also stay in other European Union countries. Hence, the strict rules for the EU immigrants would result in a retaliation of those UK immigrants staying abroad. British people would end up applying for visa every time they plan to travel across the English channel. British would not face any problems till the year 2018, yet, after that, retaliation of EU would pose a significant issue for the UK immigrantsstaying in other European countries. Hence, Britain would lessen the strictness of the rules regarding allowing EU citizens that would enter UK. It has a direct effect on the UK immigrants in other EU countries.
4. The direct effects of Brexit on the Australian economy are likely to be negligible. This involves a larger flow through trade relationships that are comparatively small between the UK and Australia. Although the UK is not the largest trading partner for Australia however, it is a significant trading partner in Australia. As a result, trade decision made by the UK trade will have consequences for local companies, both small and big. On the other hand, indirect effects through monetary market channels are not scientific however; it will result in negative aspect to confidence, household consumption as well as GDP. Business confidence will deteriorate due to lack of international uncertainty. However, insinuation for Australian real economy will be restricted unless monetary markets get worse considerably from here (Busch and Matthes 2016).
Figure: Impact of Brexit on Australia
(Source: Rynn 2016)
If the monetary markets confiscate up, then the big Australian banks will find it complex to secure the enormous amounts of offshore funding that they require. As a result, share prices will decrease sharply and the government guarantees will be called for. Australians having assets and pension in the UK are likely face negative results due to fall in pound. Although, Australia was preparing to enter preliminary talks with the EU about a free trade agreement, Brexit will certainly put the decision on hold. As a result, Australia will have to discuss a separate trade agreement. The disruption that will be caused by trade agreements will have a negative effect on Australian trade as well as Australian economy. Australian economy will be exposed to negative economic activity by avoiding trade with British trade (Galligan 2016).
Australian wine will become comparatively cheaper as tariff could be dropped if the UK quits EU. However, the exporters in Australia will be benefited as tariff will be introduced for all imparted wine thus, creating a level playing field for them. In terms of the monetary policy, the view stays on hold for the Reserve Bank in Australia due to sensitive global risk that suggests a higher probability of a rate cut in the coming days. Exports in Australia will be negatively affected due to Brexit as weaker outlooks for UK incomes and Sterling will lower the demand for commodities and services. Brexit creates hesitation for both inbound investment as well as outbound investment amidst the poorer viewpoint for the UK economy and the abridged incentive for Australian businesses to institute a presence in the UK as an entry to Europe (Crabb 2016).
5: Global economy might slowdown because of Brexit, as Brexit will unfavorably affect the growth in aggregate global demand due to increase in policy uncertainty. This will be mainly because Brexit will push capital away from the UK. Brexit raised the outlook for continued anxiety in the global economy as investors struggle to deduce what is happening. The second-largest economy in the world, China is slowing down considerably due to Brexit. This is mainly because the markets have little faith in the data offered by its Communist party government. The GDP of China is also expected to grow less as compared to the previous forecast.
Position in the World
Brazil is considered as the darling economy among the emerging markets. However, due to Brexit, Brazil is in a full-blown crisis. This mainly because the devaluation of the American dollar, that is related to Brazilian real lowered the cost for most Brazilian goods. The economic drag of Brexit of the year 2016 is expected to be modest. However, over the long term the expansion of the UK and Europe looks uglier. Brexit has also affected Germany, Spain and France by slowing down their economic growth. Brexit mainly affects the global economy due to impact on global confidence as well as tighter monetary state. The vote to leave EU intensifies risks for the global economy (Cumming and Zahra 2016).
|
Month |
GDP growth (USA) |
GDP growth (UK) |
|
Jan-16 |
2.4 |
2.3 |
|
Feb-16 |
2.4 |
2.3 |
|
Mar-16 |
2.3 |
2.2 |
|
Apr-16 |
2.2 |
2.1 |
|
May-16 |
2.1 |
2.2 |
|
Jun-16 |
2.1 |
2 |
|
Jul-16 |
2 |
0.2 |
The slowdown of the economic growth will lead to fewer paying jobs that are the level of employment will be lowered. Deep, compulsive austerity programs are likely to affect GDP growth that will affect the global economy. Brexit had also led to flat and negative real wages in the UK, EU and USA for the last 5 years. Brexit is likely to bring about weaker trade as well as investment internationally that will weaken confidence. Supply chain in the UK is likely to face disruption due to Brexit. Weaker consumption is likely to hit the automotive industry. This is mainly because the customers will delay their purchases. Brexit will also lead to serious hyperinflation that will be extremely rapid and out of control. As a result, the concept of inflation will become useless, as increase in price will be out of control. Germany and Euro zone is required to respond with a stimulus package of enormous investment in infrastructure and creation of real jobs with the help of massive training programs (Fichtner et al. 2016).
Oil prices are likely to suffer due to downward pressure as global GDP growth weakens. Interest rates are also likely to remain lower for a longer period. Russia is likely to get affected largely due to Brexit along with global growth. However, if oil prices fluctuate above $45 then ruble can keep hold of some moderate strength and the consequences for the Russian economy will be muted.
Reference
Bianchetti, M., Galli, D., Ricci, C., Salvatori, A. and Scaringi, M., 2016. Brexit or Bremain? Evidence from bubble analysis. Evidence from Bubble Analysis (June 20, 2016).
Boulanger, P. and Philippidis, G., 2015. The End of a Romance? A Note on the Quantitative Impacts of a ‘Brexit’from the EU. Journal of Agricultural Economics, 66(3), pp.832-842.
Conclusion
Brugge, G.S., Perraton, J., Lindstrom, N., Evans, P.M., Lee, S., Quaglia, L., Erturk, I., Dannreuther, C., KCL, S.J. and Wilson, S., 2016, June. Britain and Europe: The political economy of ‘Brexit’in trade and finance Workshop at the University of York, 14 June 2016. In Workshop at the University of York.
Busch, B. and Matthes, J., 2016. Brexit–The Economic Impact. A Meta-Analysis, IW-Report, (10).
Campos, N.F. and Coricelli, F., 2015. Some unpleasant Brexit econometrics.
Crabb, A., 2016. Wine export: Impact of the’Brexit’on Australian wine exports. Wine & Viticulture Journal, 31(3), p.73.
Crafts, N., 2016. UK Economic Growth Performance in a European Context: Has EU Membership Made Much Difference?.
Cumming, D.J. and Zahra, S.A., 2016. International Business and Entrepreneurship Implications of Brexit. British Journal of Management, forthcoming.
Curry, S., 2016. What is the meaning of Brexit?. EMBO reports, p.e201643113.
Dhingra, S., Ottaviano, G. and Sampson, T., 2015. Should we stay or should we go? The economic consequences of leaving the EU. CEP Election Analysis Paper, (22).
Dhingra, S., Ottaviano, G., Sampson, T. and Van Reenen, J., 2016. Brexit: the impact on UK trade and living standards. Centre for Economic Performance, LSE.
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Dorling, D., 2016. Brexit: the decision of a divided country.
Fichtner, F., Steffen, C.G., Hachula, M., Junker, S., Kirby, S., Michelsen, C., Rieth, M., Schlaak, T. and Warren, J., 2016. Brexit decision puts strain on German economy. DIW Economic Bulletin, 6(31), pp.359-362.
Fry, J., 2016. A statistical reaction to Brexit.
Galligan, D., 2016. Brexit, does it matter?. Australian Canegrower, (04 Jul 2016), p.2.
Goryunov, E., Kiyutsevskaya, A.M. and Trunin, P., 2016. Brexit Results: Macroeconomic Risks. Russian Economic Developments. Moscow, (7), pp.51-53.
Hume, T., 2016. Britain’s Labour Party in turmoil over Brexit vote results.CNN (June 27) https://edition. cnn. com/2016/06/26/europe/uk-brexit-labour-corbyn.
Kierzenkowski, R., Pain, N., Rusticelli, E. and Zwart, S., 2016. The Economic Consequences of Brexit.
Koutrakos, P., 2016. Brexit and International Treaty-making. European law review, (1), pp.1-2.
Krause, T., Noth, F. and Tonzer, L., 2016. Brexit (probability) and effects on financial market stability.
Lang, A.T., 2014. The consequences of Brexit: some complications from international law. LSE Law: Policy Briefing Paper, (3).
Ottaviano, G.I.P., Pessoa, J.P., Sampson, T. and Van Reenen, J., 2014. Brexit or Fixit? The trade and welfare effects of leaving the European Union.
Wallace, H., Pollack, M.A. and Young, A.R. eds., 2015. Policy-making in the European Union. Oxford University Press, USA.Richardson, J. and Mazey, S. eds., 2015. European Union: power and policy-making. Routledge.
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