Breakdown Brexit Risks

Tue, 2017/12/05 - 2:12pm | Your editor
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Brazilian pension reform is back on track so the country's bolsa is bullish, up 0.82% in reais, or 22.4% for the year and another 0.51% for the currency's rise against the dollar. São Paulo is now ahead of Chile, Colombia, and poor Mexico. But what markets like best are repentent sinners so the top major market in Latin America is Argentina, up 51% (net of currency losses). I used local market data.

 

The embarrassing split between Britain and Northern Ireland over the European Union's terms for moving on to trade talks has led analysts to consider the impact of a walkout without a deal at all. This at one point PM Theresa May threatened her EU counterparts with. Breakdown risks are high.

Crédit Suisse looked at the sectors which will suffer the most from a no-deal outcome. Tariffs on food from the EU will hurt British farming because agricultural exports would have to pay them under World Trade Organisation rules. And farmers will lose the subsidies they are now getting under the Common Agricultural Policy which account for 50% or more of their income. And Britons who eat food will have to pay 8% more for their groceries, boosting inflation by a similar amount.

The UK financial services industry would suffer from a brusque Brexit and lose jobs, while the Exchequeur would lose about 11% to 15% of its total tax receipts which come form the financial services sector.

The auto industry (as also in Nafta countries) is highly integrated across borders and would face a £4.5 bn in costs which would translate into a 15% rise in car prices, and a 20% drop in car sales. Again inflation would increase.

Landing rights could ground airplanes between the UK and the EU and disrupt supply chains in the whole European region.

Leaving Euratom without a deal would keep Britain from getting nuclear isotopes (for medical care), nuclear fuel, and components for its reactors. It would also have less money for nuclear physics research.

With the European Medical Authority moved to Amsterdam, Britain faces customs delays for its pharmaceuticals and customs delays. In theory pharmaceuticals trade duty free but border controls and customs checks will slow the movement of drugs and hurt patients on both sides of the border.

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