International Monetary FundSeptember 15, 2016
The Impact of BrexitFall 2016 BPEA Conference
Maurice ObstfeldEconomic Counsellor
10-year government bond
yields(percent)
Equity markets(index; June 23, 2016 =100)
-3
-2
-1
0
1
2
3
Jan-16 May-16 Sep-16
Nominal Real
9/7
Brexit
Vote
Sources: Haver Analytics, and IMF staff estimates.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Jan-16 May-16 Sep-16
iBoxxBBB 7-10 years
iBoxx A 7-10 years
iBoxx AA 5-10 years
iBoxx AAA 7-10 years
9/7
Brexit
Vote
Quick equity recovery and lower bond yields
Corporate bond yields(percent)
80
85
90
95
100
105
110
115
Jan-16 May-16 Sep-16
FTSE 100 FTSE 350
Brexit
Vote
1
9/7
Change
after
June 23:
+8.0%
+7.3%
Change
after
June 23:
-72 bps
-31 bps
Change
after
June 23:
-45 bps
-31 bps
-20 bps
-28 bps
85
90
95
100
105
110
115
120
2010 2012 2014 2016
Last obs.:
Aug. 16
Brexit
Vote
UK exchange ratesManufacturing PMIs(SA, 50+=Expansion)
2
Sentiment has deteriorated and sterling is down
40
45
50
55
60
65
70
2010 2012 2014 2016
Services Construction
Aug. 16
Brexit
Vote
Sources: Haver Analytics, and IMF, Global Data Source.
80
85
90
95
100
105
110
115
120
125
1.2
1.3
1.4
1.5
1.6
1.7
1.8
2010 2012 2014 2016
U.S. dollar per U.K. sterling pound
NEER (index; Jan. 1, 2010=100; rhs)
9/9
Brexit
Vote
Economic sentiment(index; long-term average=100)
56
57
58
59
60
61
62
4
5
6
7
8
9
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Temporary employees as a percent of all employees
Employment rate: aged 16 and over (rhs)
Jun. 16
Brexit
Vote
New export orders PMI and real
effective exchange rate
Labor markets(percent)
3
Sources: Haver Analytics and IMF, Global Data Source.
Labor indicators steady and some trade improvement
70
80
90
100
110
120
35
40
45
50
55
60
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
New export orders (SA, 50+ = Expansion)
REER (index; Jan. 2000=100; rhs)
Aug. 16
Brexit
Vote
2017 1/2016 1/
4
Source: Consensus Economics; and IMF, World Economic Outlook..
Note: 1/ Revisions are reflecting the change in forecasts between the pre-Brexit vote vintage and the most recently available vintage.
Current forecast revisions after Brexit vote
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
Bank o
f A
merica -
Merr
illB
arc
lays
Beacon E
con F
ore
casting
Capita
l E
conom
ics
Citig
roup
Econ Inte
lligence U
nit
Econom
ic P
ers
pe
ctives
Experi
an
Gold
man
Sachs
HS
BC
IHS
Econom
ics
ING
Fin
ancia
l M
ark
ets
ITE
M C
lub
JP
Morg
an
Liv
erp
ool M
acro
Resea
rch
Lo
mba
rd S
tre
et R
esearc
hN
IES
RN
om
ura
Oxfo
rd E
conom
ics
RB
SS
chro
ders
Socie
te G
enera
leU
BS
UniC
redit
Consensu
s (
Mean)
Consensu
s (
Media
n)
IMF
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
Bank o
f A
merica -
Merr
illB
arc
lays
Beacon E
con
Fore
casting
Capita
l E
conom
ics
Citig
roup
Econ Inte
lligence U
nit
Econom
ic P
ers
pe
ctives
Experi
an
Go
ldm
an S
achs
HS
BC
IHS
Econom
ics
ING
Fin
ancia
l M
ark
ets
ITE
M C
lub
JP
Morg
an
Liv
erp
ool M
acro
Resea
rch
Lo
mba
rd S
treet R
esearc
hN
IES
RN
om
ura
Oxfo
rd E
conom
ics
RB
SS
chro
ders
Socie
te G
enera
leU
BS
UniC
redit
Consensu
s (
Mean)
Consen
su
s (
Media
n)
IMF
Brexit: Summing up impact
How do we interpret the better-than-expected financial market
developments?
Will they be unwound? No obvious reason, until new negative data emerge
Has the exchange rate saved the day? It has helped (exports, UK debt
denominated in sterling)
House prices? Slowdown in rate of growth; BoE backstop (support to bank
lending channel, eased countercyclical buffers, lower interest rates, and QE)
Uncertainty effects will be prolonged
Can’t negotiations quickly dissipate uncertainty? Not likely given French and
German electoral calendars, U.K.’s lack of preparedness for referendum result
U.K. macro policies, including fiscal easing, can be helpful
But uncertainty effects will also impact the EU-27, with little policy space
5
Brexit: Structural factors and political fallout
How will structural factors play out? Unclear, supply likely affected
What type of deal will be struck with EU? Unclear. EEA unlikely due to lack of
migration control. But access to single market crucial for exports
How will the financial sector be affected? Other key exporters (e.g. car
manufacturers, Airbus suppliers)? Depends on access to single market. U.K.
financial passport a very likely casualty, City of London’s status in peril
Will migration into U.K. slow down sharply? At some point; in the short run, we
may see a surge in migrants from EU-27 before restrictions come into play
What further political repercussions?
Too good a deal for the U.K. would further encourage centrifugal forces in EU
Could the U.K. reconsider? Seems difficult given current political disarray….
Serious re-think needed on a range of EU, euro area arrangements
6