Is Brexit likely to bring about gut-wrenching change and turmoil for world economies and markets like the collapse of Lehman Brothers did in 2008? It doesn't look like that.
Is Brexit likely to bring about gut-wrenching change and turmoil for world economies and markets like the collapse of Lehman Brothers did in 2008? It doesn’t look like that…
Ratings agency Standard & Poor’s said the United Kingdom was likely to lose its AAA credit rating, according to a report, and economists said if the transition – including negotiating trade deals with the EU and other countries – was not smooth then Britain risked falling into recession next year.
But despite the market ructions, many said the ‘Leave’ vote was not a moment equivalent to the 2008 collapse of Lehman Brothers that could tip the world economy back into crisis.
“Financial markets will likely react in an aggressive manner this morning and the world has changed, but from a market perspective this is not a systemic Lehman moment,” Exane BNP Paribas analysts said in a report.
“It is politics where the main uncertainty now lies, with central bank response also important.”
Watch: Britain votes to leave EU, impact so far
One of the biggest challenges for Britain will be to reach standalone trade deals in the timeframe of about two years to manage its withdrawal, given such negotiations often take much longer.
“These processes and their eventual outcomes could well remain unresolved for years, weighing heavily on investment and economic sentiment during the interim and depressing output,” the International Monetary Fund said in a report last week ahead of the vote, saying it could potentially tip Britain into recession.
Indonesia is currently negotiating a trade deal with the European Union, and Darmin Nasution, coordinating minister for economics said Brexit would be a manageable complication.
“We’re in the middle of a negotiation for a trade pact with the EU. If Britain wants out, it will not be part of that pact. We will have to make a separate trace pact with it,” Nasution said. “But there should be no problem in exports, we will still be able to export there.”
(With inputs from Reuters)