The UK’s vote to Brexit will not derail Europe’s ongoing recovery, experts argue.
Amundi head of macroeconomics Didier Borowski says Europe will be sheltered from much of the fallout from Brexit. He says the main impact will be on trade but there is “no reason” the leave vote would impact the internal demand that is driving the region’s recovery.
Borowski says: “The recovery in the Eurozone is driven by internal demand and it is impossible to see that become detrimental because the UK decided to leave.”
Amundi predicts European GDP will increase by 3 to 4 per cent next year, with Borowski saying GDP growth was growing pre-Brexit vote and the European Central Bank will support growth with a further tightening of its monetary policy.
The ECB said today it is prepared to provide liquidity to markets if needed, saying it is “closely monitoring financial markets and is in close contact with other central banks”.
“Europe will not experience recession,” adds Dominic Rossi, global chief investment officer for equities at Fidelity International, especially because the region is supported by “sufficient momentum” from Germany.
He says: “Despite pressure in peripheral markets such as Spain and Italy you need to look at how the political scene will develop.”
Rossi adds that despite the euro becoming weak after the vote, Brussels will offer fiscal support: “Brussels will need to rely on fiscal stimulation. France or Italy will say they might not hit their fiscal targets but Brussels won’t pressure them, given the current climate.”
Lucy Walker, fund manager at Sarasin and Partners, agrees Europe’s recovery so far has been led by domestic demand.
Walker says European markets have taken a bigger hit relative to UK markets due to nervousness around what Brexit means for the future of the EU as a whole, pointing to the celebratory response of far right parties in Italy and France.
Rory Bateman, head of European equities at Schroders, says the impact in Europe will depend on the response by authorities within the union. “It will be some time before we can determine the earnings impact, if at all,” he adds.