The June 23 2016 the majority of UK citizens voted to leave the European Union. While wondering about the repercussions on long-term trade flows, existing arrangements will limit short-term volatility. Since the economic ties between the UK and the rest of the European Union are among the deepest, only a limited slowdown in economic activity in Britain could be felt.
In the short run, moving into unknown territory for the UK could negatively affect the business environment and consumer confidence. As reported by Atradius study, business sentiment has already deteriorated and firms are delaying hiring and investment decisions. The country will now be the subject of negotiations with the EU to determine, among other things, the regulation of trade flows between the two partners. Negotiations could involve several options, from implementing WTO rules to an EU-UK Free Trade Agreement (FTA), according to analysts the most desirable solution. The negotiation phase will last at least two years, not to mention that the negotiation of an FTA could take much longer. As a result, uncertainty will persist over the next few years, reflecting on financial markets and business sentiment. Loan conditions could become tougher for local businesses, as well as risk premiums, in particular for those activities that strictly depend on exports with EU countries. For European markets, both short- and long-term economic impacts will generally be felt through two channels: trade and investment. Countries with a significant stock of foreign direct investment (FDI) in the UK, such as equity and bond ownership, would see the euro value of their assets in the UK drop considerably, causing many investors to be reluctant foreigners. Furthermore, among those markets with close trade ties to the UK are a handful of countries more exposed to lack of certainty than the rest: Ireland and Norway in terms of exports; Holland regarding the flow of FDI; Luxembourg, France, Germany, Spain, Switzerland and Belgium for both aspects.
And if the bankruptcy rate is related to the GDP trend, a deterioration in the economic growth rate should have negative consequences for employment. Most GDP impact studies focus on the long term, however the business focus of businesses and investors is more immediate. Real disruptions to trade would not occur until late 2018 when the UK is expected to leave the EU. In the short term, based on data OECD analysts now expect the heaviest consequences generated by the climate of uncertainty, such as the revision of investment plans and the weakness of business sentiment, and then transfer default risks to those European markets with close trade ties to the UK. The brake on growth seems to be more acute in the UK (-1,35 percentage points). Furthermore, analysts believe that the effect on insolvencies and bankruptcies in Ireland will be as strong as that felt in the United Kingdom, since Eire sends almost 10% of its GDP in terms of added value to the UK. Belgium and the Netherlands are also expected to see their insolvency levels rise by 2,5 and 2,0 percentage points respectively, both for trade and investment. With regard to the other countries (in particular Switzerland, France and Germany) the forecasts see an increase in insolvencies below 0,5%.
