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Screenshot of a breaking news alert e-mail from Q2 2017
The following guest post is courtesy of Daniel Smithfield. Daniel is a freelance writer and editor living in New York City with a lifelong passion for business and economics. Following his graduation from university Daniel worked for several newspapers before embracing the freelance lifestyle. When not anxiously watching the stock markets he spends his time helping his fiancee plan their impending nuptials, staying engrossed in American football, and playing with his Labrador Retriever.
It’s been a little over a month since the UK held its referendum on whether or not the country would leave the European Union and the full ramifications of the decision are just now starting to be felt. The British exit from the Union, more commonly known as the “Brexit,” comes with some serious economic consequences for Great Britain, but they’re not alone. The rest of the world is feeling the hit, too.
The world economy has been gripped with trepidation as it waits to see how this will all play out while Britain prepares for its departure. Following the results of the referendum, the British pound dropped to historic lows that hadn’t been seen for more than 30 years. Also, the G20 group of the world’s 20 largest economies has said that the exit further heightened uncertainty in the global economy.
However, it should be noted that members did concur that the economy would improve in spite of this adversity, albeit at a slower pace. Unfortunately, the same can’t be said for the economy of Britain, whose economic growth forecasts were reduced by the International Monetary Fund from 1.9% to 1.7% with the overall world economy cut from 3.2% to 3.1%.
Additionally, many major U.S. companies are expecting the fallout from the Brexit to hit American shores, though it’s too soon to tell when it will happen or how drastic it will be. One such company is auto giant General Motors, which is looking seriously at cutting its costs in Europe to preemptively offset potential fluctuations that could cost the company close to half a billion dollars. Meanwhile, FedEx revealed in an annual report that it has its own worries about how the Brexit could cause a decline in the usage of its services in a sort of negative trickle-down effect.
The world markets aren’t the only ones that have been effected, betting markets have felt the brunt of the Brexit as well. The referendum broke the record for the largest non-sports betting event with an incredible £120 million wagered in total. The only problem was that the bookmakers had bet on Britain staying in the EU. The end result is that oddsmakers such as William Hill are now having to pay out to the lucky punters who bet on the underdog, ultimately resulting in a loss of approximately £400,000 for the company.
While the sky isn’t necessarily falling on the world economy, there are plenty of reasons for cautious apprehension in the world markets. It could take up to two years for Britain to finalise its exit from the European Union, which is a lot of time to figure out exactly what impact it will have on the rest of the world. Few question that the Brexit will ultimately have a negative impact on the world economy, the real question is just how large that impact will be.