Brexit may cut UK's GDP by 2-7% by 2030, says report

Published Tue, Jun 21, 2016 · 03:48 AM

BRITAIN'S exit from the European Union (EU) may lower the country's gross domestic product (GDP) by 2 to 7 per cent by 2030, a recent AXA Investment Managers' report said, as a poll on Monday showed that votes in the stay-or-go clash are evenly split.

The AXA report comes ahead of the referendum on Brexit on June 23. Its base case is for the UK to vote to stay within the EU, though it has urged investors to hedge the risk of a possible Brexit.

"The referendum has opened a Pandora's Box of political uncertainties in Europe, ranging from balkanisation to deeper integration," the report said.

The Financial Times poll showed on Monday that votes are split down the middle.

"The immediate impact on risk assets would be significant, although less so than during the financial crisis episode. Moreover, we cannot exclude a longer lasting negative feedback between markets, economies and political developments in Europe," the report said.

It kept its "underweight" call on equities, and its positive view on credit. "We expect the UK to vote 'Remain', which would spark a short-lived relief rally and push gilt yields higher. Rich stock market valuations should limit the upside potential."

AXA held its 2.8 per cent global growth forecast in 2016, though it warned that growth remains fragile, with "manufacturing fatigue" in the United States offset by a slight acceleration in the euro area and Japan.

"As expected, all the major central banks have opted for inaction, given economic and political uncertainties. In case of Brexit, we expect a coordinated injection of liquidity to assuage market turbulences," it said. "If 'Remain' wins, monetary policy divergences are likely to resurface with the prospect of a Fed hike in July."

This means, AXA added, that the European Central Bank will most likely announce an extension of its purchase programmes in September as inflation will remain muted. The Bank of Japan will be expected to implement additional quantitative easing over autumn, too.