Sunday, June 26, 2016

Brexit losses prompt firms to quit UK; Goldman sees UK recession; When the 'risky trinity' looms

1 Brexit losses prompt firms to quit UK (Zoe Wood, Jill Treanor & Phillip Inman in The Guardian) British businesses have warned that Brexit will trigger investment cuts, hiring freezes and redundancies as the consequences of leaving the European Union threaten to destabilise markets further this week.

The survey by the Institute of Directors (IoD), which found that the majority of businesses believed Brexit was bad for them, comes amid fears that investors will wipe billions more pounds off share values on Monday morning, and signs that the pound, which hit a 30-year low on Friday, was coming under further pressure from trading in Asia.

The IoD said a quarter of the members polled in a survey were putting hiring plans on hold, while 5% said they were set to make workers redundant. Nearly two-thirds of those polled said the outcome of the referendum was negative for their business. One in five respondents were considering moving some of their operations outside of the UK.

The governor of the Bank of England, Mark Carney, was expected to abandon plans to travel to a meeting of central bankers and policy makers organised by the European Central Bank in Portugal on Wednesday. He will remain in London to oversee the response to the uncertainty.

Meanwhile, fears are spreading that an estimated 100,000 roles could be lost in the financial sector if banks press on with contingency plans to move jobs out of the UK. Banks are preparing to shift roles out of London amid the uncertainty about whether the UK can keep its “passporting” rights allowing them to operate across the EU.

Analysts said that Brexit should not spark the chaos which followed the collapse of Lehman Brothers in September 2008. “Policymakers and companies have had time to make contingency plans, even if they can’t fully offset the impact,” said analysts at at French bank Société Générale. However, the analysts expect the pound to fall another 10% “over time” and the euro by half that amount.

2 Goldman sees UK recession (Straits Times) Britain is likely to enter a recession within the year as a result of last week's vote to leave the European Union, a decision that will stunt global economic growth as well, Goldman Sachs' top economists said.

"We now expect the (British) economy to enter a mild recession by early 2017," Goldman economist Jan Hatzius and Sven Jari Stehn wrote in a note for clients. They expect the victorious "leave" outcome in the June 23 referendum to chop a cumulative 2.75 per cent off UK gross domestic product in the next 18 months.

They also expect knock-on effects in the US and European economies. Goldman now expects euro zone GDP over the next two years to average 1.25 per cent versus 1.5 per cent before the Brexit vote.

For the US economy, the bank now expects GDP growth in the second half of 2016 to come in at 2 per cent versus a forecast of 2.25 per cent previously. Goldman sees three principle risks for as a result of the vote: terms of trade are likely to deteriorate; companies are likely to scale back investment due to the uncertainty; and financial conditions will tighten due to exchange rate fluctuations and weakness in risk assets like stocks and junk bonds.

3 When the ‘risky trinity’ looms (Khaleej Times) Global economic policy urgently needs rebalancing, the Bank for International Settlements (BIS) said on Sunday, as the world faces a "risky trinity" of high debt, low productivity growth and dwindling firepower at the world's big central banks.

The BIS, an umbrella body for major central banks, said in its annual report that the global economy was highly exposed even before Thursday's vote by Britain to leave the European Union. "There are worrying developments, a sort of "risky trinity", that bear watching, said the head of the BIS monetary and economic department, Claudio Borio.

He said the global economy cannot afford to rely any longer on the debt-fuelled growth model that has brought it to the current juncture. Despite sub-zero interest rates and trillions of dollars of stimulus, Europe and Japan's central banks are struggling to lift inflation and growth.

The BIS's foreign exchange reserves data, which are considered the most accurate in the world, showed a $668 billion decline globally last year. China accounted for $513 billion of that, presumably as it sought to sure up the yuan.

Middle East countries burnt through $140 billion of their reserves as oil prices dropped. Japan and Malaysia which saw big currency declines last year, of $20 bilion and $21 billion.

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