Australia-UK: Exports and FDI after the Brexit vote

07 Jul 2016

Tags

  • Mark Thirlwell
  • Australian Economy
  • International Investment
  • International Trade

Share of Australian merchandise exports going to the UK, 1885 to 2014/15

What are the implications of the 23 June 2016 vote for Brexit for Australian exports to the UK and for bilateral foreign direct investment (FDI) flows?

The short answer is that the near-term consequences look to be dominated by the impact of financial market volatility and the hit to UK (and EU) growth prospects that is likely to be triggered by the increase in economic and political uncertainty produced by last month’s vote. Certainly, that’s the view implied by recent surveys of consensus forecasts, although at least one prominent economic commentator has argued that this common view may be too pessimistic about the immediate implications of last month’s vote.

As to the medium-term consequences of a Brexit for Australia-UK economic ties, it’s still too early to give a definitive answer, with much depending on the nature of the UK’s future relationship with the rest of the EU, the time taken to negotiate that relationship, the amount of uncertainty generated in the meantime, and the consequences of Brexit for the wider EU. Then there’s what Brexit might mean for the trajectory of the UK’s future relationship with non-EU countries to consider. That said, the pre-vote analysis of a range of institutions including the IMF, the OECD and the UK’s own Treasury provides a challenging baseline regarding future prospects. But if you’d like a longer answer than that one, then please take a look at my new paper on the subject, which we’ve now added to our list of reports and presentations.