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Brexit Decision Is Likely to Reduce Growth in the Short Term

Author

Listed:
  • Ferdinand Fichtner
  • Christoph Große Steffen
  • Michael Hachula
  • Thore Schlaak

Abstract

The high degree of uncertainty about the United Kingdom’s (UK) economic future following the June 23 Brexit referendum is leading to a flight into safe assets, and will most likely worsen financing conditions for British companies. In addition, companies could reduce investment and postpone hiring decisions. This is likely to start dampening economic growth in the UK in the short term, thus reducing the export possibilities for the euro area and Germany. The German automotive industry, which counts the UK as a major export destination, will be the most affected; German producers of wood, paper, and leather goods, as well as those of pharmaceu-ticals and chemical products, will also feel the impact. Assuming that the Brexit decision reduces British imports by 12.5 percent by the end of next year compared to a Remain-vote scenario, Ger-many’s economic growth in 2017 could be half a percentage point lower than previously expected.

Suggested Citation

  • Ferdinand Fichtner & Christoph Große Steffen & Michael Hachula & Thore Schlaak, 2016. "Brexit Decision Is Likely to Reduce Growth in the Short Term," DIW Economic Bulletin, DIW Berlin, German Institute for Economic Research, vol. 6(26/27), pages 301-307.
    • Handle: RePEc:diw:diwdeb:2016-26-3
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    More about this item

    Keywords

    Brexit; economic uncertainty; trade channel;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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