Tuesday, 9 August 2016

Will Brexit Steal Christmas for the Euro Zone?

In World Economy News 09/08/2016

This Christmas season will be about more than just gifts and candy – it could be the time when the economy starts to show how badly it was hit by Brexit.
So far, euro-area manufacturers have been unfazed by the U.K.’s vote to leave the European Union – economic sentiment unexpectedly improved, a survey of purchasing managers signaled a pickup in activity going into the third quarter and unemployment keeps declining.
One reason for their optimism may be order books. Roughly speaking, companies have another four months’ work to fulfill current orders. That’s two weeks longer than the average since 1990, according to data by the European Commission. In the 28-member European Union, the backlog exceeds the long-term trend by more than a month.
“Manufacturers are in a comfortable situation,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “Order books are rather full, so they have reason to be relaxed.”
So far, so good. But opinions diverge as to what will happen to the real economy once Brexit filters through. The International Monetary Fund has warned that downside risks to global growth have increased significantly following the vote, while European Central Bank President Mario Draghi cautioned that it’s too early to draw conclusions, urging that early estimates of its economic impact need to be taken with a “grain of caution.”
Whether output drops off drastically or remains robust, it’ll take time to feel the impact. See you in December.