Brexit: how much of a hit to the Baltics?
- We expect the UK to stay in the EU; possibility of Brexit at 40%
- Financial market stress, impediments to trade, and political instability in case of Brexit…
- … imply risen monetary policy uncertainty and slower growth in the Baltics and the euro area
In the base scenario, we expect the UK to stay in the EU. The UK referendum will thus be followed by a rebound in stock prices and British pound sterling (GBP) from earlier depressed values that were driven by Brexit-risk uncertainty. Swedbank rates the likelihood of Brexit at 40%. In this case, the consequences for the Baltics and the euro area as a whole would be felt through three main channels:
- The effects on the European financial markets would be instantaneous but most of them would be temporary – excessive volatility, a weaker pound, a possible fall in stock prices and bond yields. The effect on the Baltics would be small due to low debt levels.
- The trade exposure of the Baltics to the UK is not sizable, 3-5% of total goods exports. It is more important for some industries, like the manufacturing of wood, machinery and equipment, and – in Lithuania also mineral fuel. Limited negative impact is expected on the Baltics.
- The political consequences for the EU would probably be the largest negative effect – an even greater challenge for EU collaboration and a more politically divided Europe, greater likelihood of more radical/populist political forces gaining power, a further delay of necessary structural reforms, larger geopolitical instability, etc. The impact could be extensive also for the Baltics.
For more information please contact Ms. Mārtiņš Kazāks, +371 67445859, email@example.com
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