Home Contact Us  

India & the World - Articles

Print Bookmark Email Facebook Subscribe
#5082, 13 July 2016

Regional Economy

Brexit Consequences: Complexities and Uncertainties
Amita Batra
Professor of Economics, Centre for South Asian Studies, School of International Studies, JNU, New Delhi

Brexit, that is, Britain’s decision to leave the European Union was announced on the 23rd of June. The announcement led to an immediate and sharp decline in the value of the British Pound (GBP). The stock markets in Britain and around the world followed suit with major losses incurred in the initial couple of days after the announcement. While pressure on the GBP continued, the stock markets recovered partially by the end of the working week. The political scenario in the UK is now in the process of getting reconfigured. The timing of the initiation of Brexit from the EU is not yet known even though the EU has shown a firm response and desired that the UK actualise its decision at the earliest. From announcement to initiation to exit, the time it may take to accomplish the task of Britain’s withdrawal from the EU may be long drawn and uncertainty may prevail in the interim. How is the Brexit decision likely to impact the UK economy, its trade and economic cooperation with the EU in future, EU stability and its integration in the global economy, are among the many questions that the world has since been grappling with.

As an immediate consequence of the weakened GBP and associated economic uncertainty, global investors in a risk-off mode are seeking safer currencies like the US Dollar (USD) and Yen. In the process, the USD has strengthened and allowed the Chinese to undertake depreciation of the Renminbi (RMB). The magnitude of RMB depreciation has been small so far. However, if USD continues to gain strength and there is corresponding and large depreciation in the RMB, speculative forces may trigger potentially destabilising capital outflows not unlike those experienced earlier in the year in January-February. The stability of many emerging market economies could be further endangered by appreciation in their large USD denomination debts. As a positive for the Chinese economy, RMB devaluation may help push Chinese exports in the immediate short run but over the longer run may lead to competitive devaluation in the region. Indian exports that have seen a steady decline for over a year now may find it difficult to reverse the trend under these circumstances. Capital outflows may also impact the Indian economy and it could as a consequence see lower portfolio inflows. Uncertainty in general will dampen investor sentiment, postpone large investment decisions such as in infrastructure projects and consequently adversely impact growth prospects in the region.

As the UK pulls out of the EU, losing its advantage of access to the single EU market and large investments are postponed owing to the uncertain economic environment the possibility of a slowdown in the UK economy looms large.  In the process, the EU’s growth prospects are also likely to be adversely impacted. The EU is a major trade partner for the UK even though the UK’s trade with non-EU countries has been increasing since 1999. The EU is also a major investor and a major recipient of UK investment. In 2014, the EU accounted for 44.6 per cent and 53.2 per cent of UK exports and imports of goods and services respectively. In 2013, 43.2 per cent of UK overseas assets were held in the EU, whereas 46.4 per cent of assets held in the UK by overseas residents and businesses were attributable to the EU (Office for National Statistics, Government of UK). The economic slowdown will exacerbate the existing woes of the EU which is still struggling with the post 2008 financial crisis outcomes, the travails of the periphery economies and the more recent migration crisis as also of the world economy that has yet to register a sustained recovery from the global financial crisis. For Asia, the slowdown will imply further loss of export demand in its traditional EU market. Transaction costs of trade with, and investment in, the UK and EU will now be higher as both will have to be dealt with as independent economic entities. This may not be so easy. In the case of trade and investment, EU laws, standards and rules are likely to remain the same but the UK will have to negotiate afresh with the WTO. The nationalistic sentiments that have defined the exit campaign may now imply the imposition of higher tariff and other trade barriers by the UK. Asian exports may suffer as a consequence. Stricter provisions with regard to movement of people could be another consequence of the Brexit. Asian economies could be particularly adversely affected with a change in these provisions. A majority of the 42 million international migrants born in Asia were living in Europe in 2015 (International Migration Report 2015 Highlights, UN, 2016).

For India, Brexit may not be an immediate concern. The central bank made careful interventions in the currency market allaying fears of volatility induced costs and it is expected that stable macroeconomic fundamentals and its fastest growing economy status will help India sail through the uncertain economic environment post Brexit. While among the top twenty trading partners for India, UK has a small share of about 2 per cent in India’s total trade. This has not changed much in the last half a decade. How tariffs and other trade regulations alter in the wake of Brexit and hence impact on India’s trade with the UK, while not immediately clear, may also not be immediately critical for India’s trade prospects. EU is a more significant trade partner for India, with a 16 per cent share in exports and around 11 per cent in imports in 2015 (Directorate General of Foreign Trade, GoI). Finalising the India-EU FTA, under negotiation now for almost a decade, should be India’s priority. The issues that have been at the heart of prolonged negotiations such as IPR, migration and movement of people may now acquire new dimensions. At the same time, a separate FTA with the UK may not be immediately possible and certainly not till the UK undertakes its negotiations with the WTO on trade treaties and rules.

For all South Asian economies that are beneficiaries of the non-reciprocal preferential trade treatment under the EU General Scheme of Preferences/Everything But Arms/General Scheme of Preferences Plus (GSP/EBA/GSP Plus) scheme/s, benefits will continue. Though, without the friendly supporting voice of the UK, continued GSP plus preferences to South Asian exports by the EU may not be easily ensured in the future. This is significant as the EU is a major export market for South Asian exports in the labour intensive and revenue generating textiles and apparel sector. Also, in the absence of the UK, Sri Lanka which has been keen on getting back the GSP plus status (suspended in 2013) with the EU may now find it more difficult. Additionally, a slowdown in the UK economy may lead to depressed grants and remittances for the Pakistan economy with consequent adverse implications for its external position. As for trade with UK, much would depend on how far the UK will retain its pre-exit trade rules once the exit is formally complete.

Of course, all of the above uncertainties would be compounded and the ramifications far more complex were instability in the EU to become reality and if the Brexit was to trigger other such reactions from significant other members of the EU. It is also possible that Brexit may play out differently; and as many are hoping, the invocation of Article 50 may be indefinitely delayed or the UK may retain access to the EU. What can however be said without doubt is that the Brexit outcomes are complex, not yet fully comprehensible and uncertainty reigns supreme. In these circumstances it would be best for Asia to strengthen its intra-regional growth impulses, supply chain networks and trade agreements to successfully counter global uncertainties.

Print Bookmark Email Facebook Subscribe
IPCS Columnists
Af-Pak Diary
D Suba Chandran
Resetting Kabul-Islamabad Relations: Three Key Issues
Can Pakistan Reset its Relations with Afghanistan?
The New Afghanistan: Four Major Challenges for President Ghani
Big Picture
Prof Varun Sahni
Understanding Democracy and Diversity in J&K
When Xi Met Modi: Juxtaposing China and India
Pakistan?s Tactical Nuclear Weapons: The Inevitability of Instability

Dateline Colombo

Asanga Abeyagoonasekera.
Sri Lanka: Moving Towards a Higher Collective Outcome
The Importance of Electing the Best to our Nation's Parliament
Sri Lanka: Toward a Diaspora Re-Engagement Plan
Dateline Islamabad
Salma Malik
Pakistan's Hurt Locker: What Next?
IPCS Forecast: Pakistan in 2015
India-Pakistan Relations in 2015: Through a Looking Glass
Dhaka Discourse
Prof Delwar Hossain
IPCS Forecast: Bangladesh in 2015
18th SAARC Summit: A Perspective from Bangladesh
Bangladesh in Global Forums: Diplomacy vs. Domestic Politics
Eagle Eye
Prof Chintamani Mahapatra
India-US: Significance of the Second Modi-Obama Meet
Has President Obama Turned Lame Duck?
Modi-Obama Summit: Criticism for Criticism?s Sake?

East Asia Compass
Dr Sandip Mishra
India-Japan-US Trilateral: India?s Policy for the Indo-Pacific
China-South Korea Ties: Implications for the US Pivot to Asia
Many ?Pivots to Asia?: What Does It Mean For Regional Stability?
Himalayan Frontier
Pramod Jaiswal
Nepal?s New Constitution: Instrument towards Peace or Catalyst to Conflict?
IPCS Forecast: Nepal in 2015
Constitution-making: Will Nepal Miss its Second Deadline?

Prof Shankari Sundararaman
IPCS Forecast: Southeast Asia in 2015
Indonesia's Pacific Identity: What Jakarta Must Do in West Papua
Modi in Myanmar: From ?Look East? to ?Act East?
Sushant Sareen
IPCS Forecast: Pakistan in 2015
Islamic State: Prospects in Pakistan
Pakistan: The Futility of Internationalising Kashmir

Looking East
Wasbir Hussain
Myanmar in New Delhi's Naga Riddle
China: ?Peaceful? Display of Military Might
Naga Peace Accord: Need to Reserve Euphoria
Maritime Matters
Vijay Sakhuja
Indian Ocean: Modi on a Maritime Pilgrimage
Indian Ocean: Exploring Maritime Domain Awareness
IPCS Forecast: The Indian Ocean in 2015

Nuke Street
Amb Sheelkant Sharma
US-Russia and Global Nuclear Security: Under a Frosty Spell?
India's Nuclear Capable Cruise Missile: The Nirbhay Test
India-Australia Nuclear Agreement: Bespeaking of a New Age
Red Affairs
Bibhu Prasad
Countering Left Wing Extremism: Failures within Successes
Return of the Native: CPI-Maoist in Kerala
The Rising Civilian Costs of the State-Vs-Extremists Conflict

Regional Economy
Amita Batra
India and the APEC
IPCS Forecast: South Asian Regional Integration
South Asia: Rupee Regionalisation and Intra-regional Trade Enhancement
South Asian Dialectic
PR Chari
Resuming the Indo-Pak Dialogue: Evolving a New Focus
Defence Management in India: An Agenda for Parrikar
Pakistani Taliban and Al Qaeda in Afghanistan: Implications for Asian Security

Spotlight West Asia
Amb Ranjit Gupta
Prime Minister Modi Finally Begins His Interaction with West Asia*
A Potential Indian Role in West Asia?
US-GCC Summit: More Hype than Substance
Strategic Space
Manpreet Sethi
India-Russia Nuclear Vision Statement: See that it Delivers
Global Nuclear Disarmament: The Humanitarian Consequences Route
Nasr: Dangers of Pakistan's Short Range Ballistic Missile

The Strategist
Vice Admiral Vijay Shankar
Jihadi Aggression and Nuclear Deterrence
The Blight of Ambiguity
Falun Gong: The Fear Within

OTHER REGULAR contributors
Gurmeet Kanwal
Harun ur Rashid
N Manoharan
Wasbir Hussain
Rana Banerji
N Manoharan

Ruhee Neog
Teshu Singh
Aparupa Bhattacherjee
Roomana Hukil
Aparupa Bhattacherjee


Browse by Publications

Issue Briefs 
Special Reports 
Research Papers 
Seminar Reports 
Conference Reports 

Browse by Region/Countries

East Asia 
South Asia 
Southeast Asia 
US & South Asia 

Browse by Issues

India & the world  
Naxalite Violence 
Suicide Terrorism 
Peace & Conflict Database 
Article by same Author
19th Party Congress: Understanding the Economics in Xi’s Speech

India's Trade Options

Pakistan’s Economy: Significance of MSCI Elevation and FTSE Inclusion

Trump's Trade Scenarios: Implications for India

G20 Summit 2016: A Lost Opportunity?

GST: Facilitating India’s Domestic, Regional and Global Integration

Changing Regional Contours and Imperatives for India

India and the APEC

IPCS Forecast: South Asian Regional Integration

South Asia: Rupee Regionalisation and Intra-regional Trade Enhancement

18th SAARC Summit: An Economic Agenda

Regional Economic Architecture: Is India Ready?

Y! MyWeb
Print Bookmark Email Facebook Subscribe
Year 2018
 2017  2016  2015  2014  2013  2012  2011  2010
 2009  2008  2007  2006  2005  2004  2003  2002
 2001  2000  1999  1998  1997

The Institute of Peace and Conflict Studies (IPCS) is the premier South Asian think tank which conducts independent research on and provides an in depth analysis of conventional and non-conventional issues related to national and South Asian security including nuclear issues, disarmament, non-proliferation, weapons of mass destruction, the war on terrorism, counter terrorism , strategies security sector reforms, and armed conflict and peace processes in the region.

For those in South Asia and elsewhere, the IPCS website provides a comprehensive analysis of the happenings within India with a special focus on Jammu and Kashmir and Naxalite Violence. Our research promotes greater understanding of India's foreign policy especially India-China relations, India's relations with SAARC countries and South East Asia.

Through close interaction with leading strategic thinkers, former members of the Indian Administrative Service, the Foreign Service and the three wings of the Armed Forces - the Indian Army, Indian Navy, and Indian Air Force, - the academic community as well as the media, the IPCS has contributed considerably to the strategic discourse in India.

Subscribe to Newswire | Site Map
18, Link Road, Jungpura Extension, New Delhi 110014, INDIA.

Tel: 91-11-4100-1902    Email: officemail@ipcs.org

© Copyright 2018, Institute of Peace and Conflict Studies.