Daily Management Review

Two leading banks improved outlook on Brexit consequences


09/07/2016


Economists from Credit Suisse and Morgan Stanley improved growth forecast for 2016 and 2017. They abandoned their expectations of recession, but experts still believe that the decision on Brexit will continue to constrain growth of the British economy.



Alex Proimos
Alex Proimos
The revision stems from good indicators of the major August PMIs, namely, services, manufacturing and construction industry. In this regard, supporters of Brexit stated that the UK economic growth will remain stable even after a general referendum.

Credit Suisse has changed its forecast of growth in 2016 from 1% to 1.9%, while forecast for 2017 has improved from reduction of 1% to 0.5% growth. Economists at Credit Suisse were the second most pessimistic among experts interviewed by the Treasury in August.

Sonali Punhani, an economist at Credit Suisse, said that the latest data showed that the after-Brexit was much more modest than previously expected. Given persistent data and more or less political stability, the bank decided to revise the forecast from decline to depressed growth.

Now, a similar opinion is shared by Morgan Stanley. The both banks still believe that Brexit will harm the UK's economy, but it will happen only after initiation of Article 50 of the Treaty on European Union, not immediately after announcement of the referendum results.

Morgan Stanley improved growth forecasts for 2016 from 1.2% to 1.9%, and from 0.5% to 0.6% for 2017

According to Melanie Baker of Morgan Stanley, when households notice changes in the economy, they are likely to be less willing to spend. "We expect that the current stability will be eroded over time, companies will refrain from investing and hiring new workers, purchasing power will decrease, and weak national currency acceleration of inflation", - concluded Baker.

Many economists are revising their forecasts in response to the latest data, but most still believe that the UK economy will face problems due to Brexit.

source: bloomberg.com






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