Eurozone Slowdown Highly Likely in the Wake of Brexit
It’s been a little over a month since the UK voted to leave the European Union in one of the biggest and most unexpected political events to happen since the turn of the century and arguably going back even farther than that. Apart from the political shakeup this has caused, the impact of the Brexit has far reaching economic consequences as well. We here at FocusEconomics, needless to say, have been working tirelessly to bring you forecasts and analysis for the UK economy and the rest of the world since the unprecedented Brexit vote.
In the immediate aftermath of the vote we came out with new post-Brexit forecasts and analysis for the UK economy and a few weeks later we had a revised set of forecasts for the UK. Subsequently, we updated or forecasts and analysis with Brexit in mind for Latin America, the ASEAN region, East & South Asia, and Sub-Saharan Africa.
Finally, without further ado, we have the all-important post-Brexit forecasts and outlook for the Eurozone economy. In the following post we present you with our updated forecasts and analysis for the Eurozone along with comments and individual forecasts from the likes of Danske Bank and BNP Paribas. We also have additional analysis on the Euro Area and our Global Economic Outlook, in case you’re interested in further reading.
What are the experts saying?
According to FocusEconomics’ latest survey of 50 leading economic institutions, the long-term Eurozone growth outlook doesn't look great. The Eurozone economy is expected to slow down in 2017 as contagion from Brexit hits the region.
Due to a strong first quarter GDP reading and the long timeline for Brexit rollout, economists project 2016 GDP expanding 1.5%, which is unchanged from the pre-Brexit forecast. It seems that for the time being everyone can breathe a sigh of relief, however, the big news is that our latest FocusEconomics survey on the Eurozone economy forecasts 2017 growth at just 1.4%, which represents a cut of 0.1 percentage points from the pre-Brexit estimate last month.
Click the infographic to open a full-sized version
“Prior to the vote, economists had considered the region’s recovery to be firmly on track as steady domestic demand had fueled growth in the first quarter of the year and the bloc had showed resilience to external headwinds. In the aftermath of the decision, analysts have significantly altered their forecasts for the Eurozone economy and many of its constituent countries,” says Angela Bouzanis, Senior Economist at FocusEconomics.
These numbers may seem fairly optimistic to some, however, Danske Bank is much more pessimistic in its expectations for the Eurozone’s economic growth in 2016 and 2017, forecasting just 1.2% and 0.7% respectively.
According to Pernille Bomholdt Henneberg, Senior Analyst at Danske Bank, “We expect a very negative impact on overall sentiment and especially on business confidence, which is likely to result in lower investments. A long period of negotiations may drag out the uncertainty, but the biggest impact should be seen in a sharp deterioration in H2 16, where we expect the euro area to be in technical recession.”
BNP Paribas is also operating on the same wavelength as Danske Bank, albeit a bit more optimistic. They’ve substantially revised down their Eurozone forecasts and now project growth of 1.4% (down from 1.5% pre-Brexit) and 0.9% (down from 1.3%) in 2016 and 2017, respectively.
Group Chief Economist at BNP Paribas, William De Vijlder commented, “The negative effect of market uncertainty and the tightening of monetary conditions on GDP is harder to pinpoint, but based on past stress events, we would estimate it at about 0.4% over two years. Eurozone GDP is, therefore, likely to be 0.5% lower than we had envisaged in our central ‘pre-Brexit’ scenario for 2016-17, with the bulk of the hit likely to come in 2017.“
What will Brexit hit the hardest?
The most direct channel of economic pain will be felt across the Channel via trade linkages, since the UK is the Eurozone’s largest trading partner. Except for Ireland, the UK has a trade deficit with all major Eurozone economies and in the near term, we expect reduced demand from the UK amid a Brexit-fueled slowdown to hurt Euro area goods. The long-term outlook, however, will be contingent on what kind of trade model the UK and the EU agree on.
In terms of the specific Eurozone economies, we believe the extent of the economic impact will be divergent across countries with Belgium, Ireland and the Netherlands among the hardest hit.
With our latest round of Eurozone forecasts almost half of the economies in the Eurozone region were revised down. Our 2016 GDP projections for 8 of the 19 countries in the region were revised down, including big guns France and Italy. Meanwhile, forecasts were left unchanged for 8 countries including Spain and Germany. None were revised up.
Where do we all go from here?
It has to be said that it is still early days and at this stage it is difficult to fully assess the impact on the region. The outcome of negotiations between the UK and the EU will be critical, however, waves of contagion are expected to hit the region through trade, financial and investment channels in the medium term.
Henneberg of Danske Bank commented further, “The euro area Markit PMIs and German IFO expectations only fell modestly in July suggesting a more resilient economic sentiment in the Euro area than has been the case in the UK. However, German ZEW expectations have declined substantially post the UK’s EU referendum and we believe it is too early to conclude that the Euro area companies are immune to the financial uncertainty stemming from the vote.”
It remains to be seen just how much the Eurozone economy is affected by Brexit. At the moment it is a bit of waiting game, so we’ll just have to wait and see, but you can always count on FocusEconomics to have the latest news and forecasts.
Further Brexit reading:
Global (G7 countries) Economic Outlook
Euro Area Economic Outlook
ASEAN Economic Outlook
East and South Asia Economic Outlook
Sub-Saharan Africa Economic Outlook
[INFOGRAPHIC] How will UK Economy Fare After Brexit?
UK's Economic Outlook Slashed in Brexit Aftermath
UK Economic Outlook
Date: July 28, 2016
TagsIMF Forex G7 Gold Germany Exchange Rate UK Industrial Metals Commodities Major Economies Latin America Euro Area NAFTA Spain oil prices China Japan Latin America Canada Asia OPEC Brexit Precious Metals Commodities Italy Ukraine Investment Nordic Economies Consensus Forecast Fed United Kingdom Trade USA Company News Argentina Africa Economic Growth (GDP) Energy Commodities Russia Infographic precious metals Brazil Sub-Saharan Africa Inflation Australia MENA Euro Area Agricultural Commodities India Base Metals Commodities Tunisia Emerging Markets Unemployment rate Oil Colombia Eastern Europe European Union South Africa Portugal Banking Sector Mexico Greece Commodities NAFTA Venezuela Iran Turkey Panelists Vietnam France Housing Market
24 minutes ago
1 hour ago
2 hours ago
19 hours ago
Economic activity is expected to increase in many emerging markets this year, however, the improvement won't be fel… https://t.co/HNQBZZZO56
20 hours ago
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- What will be the most miserable economies in 2018?
- The World's Top 10 Largest Economies
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will emerging market economies perform in 2017?
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- Gold: The Most Precious of Metals (Part 3)
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- 2017 & 2018 Economic Outlook for the Top Oil Producing Countries
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit