BREXIT – What now?
The long-term effects of Brexit are uncertain.
Much will depend on the negotiations between the EU and UK surrounding the conditions of exit. This could take years.
As Australia and the UK are closely linked, turmoil on offshore markets will likely have a large impact on Australian markets. Australian stock markets and the Australian dollar tend to decline sharply as uncertainty increases.
If financial markets seize up, as they did in 2008, then the big Australian banks will find it difficult to secure the vast amounts of offshore funding that they require, share prices will fall sharply and government guarantees will be called for again.
In the longer term, it is likely that a shaky global economy will severely impact Australia’s trade. Exports have been a key driver of recent GDP growth and so this could have severe ramifications for employment and economic growth. Recall that commodity prices sank quickly in 2008, and is also that the UK is still Australia’s 7th largest trade partner.
As the months roll on, we will get a more concrete understanding of the timeline to the UK’s exit and the terms on which it will take place. A reminder again that it could be around two years before a final deal is reached and it could be longer still until all affected agreements between the UK and non-EU trading partners are formerly agreed.
Should other nations also look to exit the European Union (or Scotland and Northern Ireland’s case the UK) then this tension could linger longer still.
