While uncertainty has come to characterise the short but eventful post-Brexit era, most strategists, economists and businesses could agree on one thing: this is no time for a myopic outlook. Indeed, as the UK begins to map out what post-Brexit success will look like, the June 23 referendum itself can be viewed as the latest existential risk to the economic and political status quo.
With this in mind what are the likely threats facing the UK as prime minister Theresa May prepares to press the start button on negotiations? What’s more, how will they impact on corporates both in the UK and mainland Europe as well as their treasury teams.
Global political instability
It is natural that politics will remain very much in the driving seat. Sony Kapoor, director of the international think-tank Re-Define recently confided that he believes there is “a deep polarisation in the societies of rich countries and irrespective of who is in government it will lead to deep scars. This growing risk in the UK, Europe and the US will generate significant volatility and uncertainty.”
The left-wing Syriza party returned to power in Greece last year, while nationalist right-wing groups such as Marine Le Pen’s anti-immigration Front National (FN) in France, the Netherland’s Geert Wilders’ Party for Freedom (PVV) and the Freedom Party of Austria (FPÖ) are gaining momentum. Moreover, that’s without mentioning the improbable rise of Donald Trump in the US – a man now in a two-horse race for the job of Leader of the Free World.
The rise of nationalist politics has gone hand in hand with an increase in protectionist trade policy, a perilous situation given the slowing of global trade, says Dr Paola Subacchi, director of the Royal Institute of International Affairs’ (RIIA) – aka Chatham House – International Economics Department. “The value and volume of global trade have been dropping and not because of the drop in oil price or the dollar strengthening,” she notes. “It’s also about the slowdown in China and the slow recovery in the euro area after the crisis.” If such a trend continues, then it will only add to the complexity surrounding trade negotiations.
The equivocation of protectionism and immigration will also have a bearing on productivity – the most infuriating economic quandary of the global financial crisis since 2008. Investment has slumped and, despite the pick-up in advanced economy employment, we are not seeing productivity rise concurrently. Boardrooms sat on swollen balance sheets that are hitting record levels need to be incentivised, to drive research and development (R&D) onwards and create imaginative economies of scales.
The elephant in the room is China and the next revolution of global ills or fortune will largely depend on the news from the world’s second largest economy. While the figure offered by the authorities is 6.5% to 7%, we are not sure by how much China’s economy is actually growing.
Indeed no-one seems certain whether the Chinese authorities actually know the true figure themselves – but a further roll-over of manufacturing growth without a pick-up in services strength would put any global recovery in severe jeopardy.
There are yet more interesting twists and turns ahead and at times like this I am reminded of an observation once made by Churchill; ‘plans are of little importance, but planning is essential’. Indeed, planning may be the only way through these uncharted waters.
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