Brexit Hampering Growth in Eurozone While Britain Rebounds
The prospect of Britain’s exit from European Union (EU) is affecting the economic performance of both the UK and countries within the EU. Recent survey results indicate that businesses in both regions are apprehensive of the impact of the separation. British Prime Minster Theresa May has said that the Article 50 which initiates the separation process will be triggered by March 2017.
IHS Markit, a financial information firm has shown that key countries within the Eurozone are struggling with poor growth. The IHS Markit's purchasing managers' index released this week for the Eurozone was at 52.6 points in September which was a 20-month low. Although anything above 50 signifies growth, IHS said that the quarterly growth was a mere 0.3 percent.
The study found that only France was showing signs of growth while others major countries such as Germany, Spain and Italy were declining. Italy whose banking crisis has been a cause of concern is registering 0.1 percent growth while Spain which declined in September has overall recorded a strong performance.
Chris Williamson, IHS Markit's chief business economist said that the slowdown is a sign of the growing cautiousness regarding the economic outlook arising from the uncertainties surrounding the Brexit. In a statement Williamson said,
We see this trend persisting into next year, as the impact of Brexit is exacerbated by uncertainty surrounding elections in France and Germany alongside ongoing political unrest in Italy and Spain.
Additionally Eurostat, the EU's statistics agency, revealed that retail sales fell by 0.1 percent in August. Britain is faring a little better than its trading partners. Results from a survey conducted by IHS Markit and the Chartered Institute of Procurement and Supply revealed a brighter picture for Britain. The all-sector purchasing managers' index issued by it was at 53.7 in September, a high for eight months
The results reflect the unexpected resurgence in the British economy after the Brexit vote, primarily because of the sharp fall of the pound which has boosted exports. Williamson however pointed out that the rise in the pound value has resulted in raised inflation in the country due to high import costs.
He also observed that the growth in the UK is weaker than the rate recorded earlier in the year and optimism about the future is lower than before. A key concern for most businesses is that if Prime Minster May decides on a hard Brexit, it could result in the loss of the critical single market access to EU which potentially can have significant consequences such as increased tariffs and London losing its status as a financial hub.
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