The Russia crisis has escalated. With Trump also expelling diplomats and EU avoiding serious tariffs from Trump but instead likely to work with him on tackling China and a hard Brexit likely to be avoided, one could see how the EU is the key beneficiary between the UK, EU, US, China in the world economic picture.
And given that data supports the UK may leave the EU as its weakest major economy, the Europeans may well not be losers after all. Some data shows that Euro-area confidence is the highest in some time too.
Brexit has shown the instant negative impact on economic growth of EU and UK as well for short term. But the expert arguments show that if we observe the long-term impact of Brexit it may enhance the economic growth to a large extent – the problem with economists being they have three opinions for every two economists. You can basically find in statistics anything you want.
Experts reveal that there are more risks for the UK with Hard Brexit. The recent predictions about Hard Brexit say that if we analyze the short to medium term impact of this deal, GDP of UK will fall by great extent as compared to EU.
However, the report of Bertelsmann Foundation shows that Hard Brexit will cost somewhere around 0.1 to 0.36% for EU’s GDP by the year 2030. The impact continues to other platforms as well where Ireland will be losing by 2.66%, Germany will decline by 0.33%, Sweden by 0.48% and Belgium will lose by 0.99%. But it looks like a Hard Brexit will not happen in any event.
We have a perfect storm where the EU may be in the peaceful eye; Brexit (the UK suffers more), trade wars (the EU is largely exempted so US and China fight it out), Russia (the EU is protected by its scale and size).
Add to this that if you look at a comparison of the Dow and the EuroStoxx 50 companies then the European companies have lagged for 5 years significantly behind their US counterparts, but now in the past 12 months, have started overtaking US stocks.
This recent 12 month performance of EU over US may too be a reflection of what we can expect for the next 12 months if my thesis above is correct.
Consider too that global funds will hardly be confident of investing in China, the other major country to get global funds, in light of Trump’s tariffs. In reality, Trump will not follow through – anyone who has read his book, the Art of the Deal, knows that. But it will cause uncertainty and that leads to investors lacking confidence.
Alpesh B Patel
For a free online trading course visit www.alpeshpatel.com/apprentice
