Macroeconomic Analysis of Great Britain after Brexit

Macroecono
mic Analysis
of Great
Britain after
Brexit
Term IV - Macroeconomics Project: Prof. Rupa Manjari S Ray
Submitted by Group - 1 (PGPM-PT April 2016)
Arun Yadav : 16PT1-10 Jitender Birhman : 16PT1-14
Dinesh Kumar : 16PT1-12 Manoj Kumar : 16PT1-16
Harpreet Singh : 16PT1-13 Rajesh Kumar : 16PT1-23
1
PGPM-PT April 2016, Macroeconomics, Prof. Rupa Manjari S Ray
Contents
1. Great Britain (UK) Brief Introduction
2. Background European Union Formation
3. Introduction to Brexit
4. How European Union works
5. Factors of UK's exit from EU
6. Effects of Brexit on UK
7. Effects of Brexit on India
8. Conclusion
2
Great Britain Introduction
Formed in 1707, Regrouped in 1922 after Secession of
Ireland
Constitutional Monarchy with Parliament
5th Biggest Economy of World
11th Largest Country in Europe
Fourth Most Densely Populated in EU
London - Global Financial Hub
Human Development Index 14th in World
3
Great Britain Introduction Contd.
Part of EU (Formerly EEC) Since 1973
Decided to leave EU 23 June 2016
Service Sector contribution to GDP 73%
Major Industries (Auto, Aerospace, Pharma, Agriculture)
UK entered Recession in 2008 for the first time since 1991
External Debt $ 9.6 TN (Second Highest in world after US)
London's financial institutions providing sophisticated
methods to launder
4
Great Britain
Dependencies
5
Great Britain Macroeconomic Condition
22% People are below Poverty Line
Unemployment Rate 2015 5.3% (Seven Year Low)
Unemployment Rate 2015 14.2% in 18-24 Year Age Group
Government Debt 87.5% of GDP in 2015
In 2013 Lost AAA Credit Rating with Moody & Finch
Fastest Growing Nation in G7 and Europe
Wage Growth 3% Annual (Higher than Inflation)
6
EU Evolution
ECSC West Luxembou Netherlan
Italy France Belgium
Germany rg d
1952
ECSC UK
1957 became declined
EEC to join EEC
UK Joined
1973 EEC
Greece
1981 Joined EEC
1986 Portugal Spain
Reunified
1990 Germany
joined
European
1993 Union
formed
1995 Sweden Finland
Till 2013 total 28 countries were joined EU as 7

EU - Aim
More
Money
Europe
an
Union
Aim
More
More
Land
People
Area
This would help make small countries more competitive in the

world market.
8
EU - Presidential Tenure
Count
5
ry A
ye
ar
s
EU
Count Count
ry D Preside ry B
nt
Count
ry C
9
How European Union works
Maastricht Treaty (1992) specified an agenda for incorporating
monetary policy:
Common currency for EU Euro

Budget deficits <3% of GDP
Public Debt <60% of GDP
Inflation rate within 1.5% of 3 lowest inflation rate in EU
Exchange rate stability
Although EU failed to keep above objectives as Italy & Belgium

Public Debt were 120% of GDP at one point of time.
10
EU - GDP share (World Economy)
World GDP 2015
Rest of the world; 16%

EU; 26%
India; 5%
Japan; 7%
China; 17%
US; 28%
11
Major Countries GDP Share in EU
UK Joined
100% EU
90% 21% 23%

31% 33% 31% 30% 29% 31% 34%
80% 38% 37% 36%
12% 13%
70%
12% 11% 14% 15% 14% 13%
60% 18% 13% 11%
19% 13% 12%
50%
GDP Share in %age18% 18% 17% 17% 17% 16% 16% 15%
15% 16%
40%
31%
30% 31%
27% 24% 23% 27% 24% 21% 21%
26% 20% 20%
20%
10% 18% 15%
13% 12% 15% 15% 13% 16% 16% 14% 15% 18%
0%
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2012 2015
Years
Inference: UK share is increasing, Germany, France & Italy shares are
decreasing. UK economy is one of the strongest and shining among EU
12
members. PGPM-PT April 2016, Macroeconomics, Prof. Rupa Manjari S Ray
Brexit
13
Introduction to Brexit
Referendum on 23rd Jun. 2016
30 million British People Voted
Overall Turn out was 71.8%
England & Wales people chose to Exit EU
Scotland & Ireland people chose to stay in EU
Prime Minister David Cameron stepped down
Theresa Mary May became the New Britain Prime Minister
14
Brexit Referendum Voting Results
62
%
Count Stay Leavi Brexi
ry in ng t
EU EU
Englan 47% 53% Yes 38
d %
Scotla 62% 38% No 47

nd %
Ireland 56% 44% No
53
Wales 48% 52% 56Yes 48 %
%
%
44
%
52
%
15
Factor behind Britain Leaving EU
Sovereignty & General Identity Issues
Starting Point - 2009 during global slow down
IMF & EU have to Bail-out PIIGS Countries
(Portugal, Ireland, Italy, Greece & Spain)
Euro plunged to 4 year low against USD
2014 Ukraine Crisis started
Crimea annexed by Russia post Referendum
EU, IMF & World Bank negotiated a $ 17 Billion bailout package to Ukrainian, to be
borne by EU Countries
Refugee Crisis from Middle eastern Countries
16
Factor behind Britain Leaving EU
Britains second fastest growing economy in EU after Germany
Britain among one of Highest contributor to EU Budget
Rise of Protectionist Phenomenon
Immigration Crisis
Economic Threat from Eastern Europe Countries
Deregulation laws defined & controlled by EU
People perception UK finances used to accommodate interests of EU
17
Macroeconomic Position EU Vs GB
Parameter EU GB Frequency
Dec. 2016
GDP Growth Rate 0.4% 0.7% Quarterly
Unemployment 9.6% 4.8% Monthly

Rate
Inflation 2% 1.8% Monthly
Govt. Debt to GDP 90.7% 89.2% Yearly
18
Macroeconomic Impact of Brexit on Britain
19
Macroeconomic Effect of Brexit on UK
Negatives Positives
Low Negotiation Increase in

Power National Savings
Loss of easy
Higher Trade &
access to a Big
productivity
market (EU)
Lack of investment Less regulations /
& Lack of job Strict Immigration
creation Laws
Additional exports Weaker Pound

tariffs to EU Sterling
20
Overall GDP will Increase

Industrial Output 2.1% Increase
GDP Cost of Production will rise
Competitive Exports
Short term Unemployment

Employme rate will increase from 5% to
6.5%
nt Overall Unemployment will
reduce in Long-Term
Wage Rate will Increase
Inflation to rise by additional 1%

Inflation (1.6%)
Weaker pound to push Inflation
rise
Tax rate hike can also push
Inflation 21
22
23
UK and India (Economic Tie-Up)
Bilateral trade worth $14.02 billion in 2015-16
8.83 billion Exports and $5.19 Imports
Positive trade balance of $3,64 billion.
India Third Largest investor in Britain
Huge Immigration base of Indians
Exports mainly consists of IT Services to Financial Institutions in UK
24
Macroeconomic Impact of Brexit on India
Outflow of Foreign Investment from India (Rupee to become Weaker)
Increment of almost 0.2% in Current Account Deficit of India
No major impact on Overall Indian GDP
Companies with Investment and Exposure to UK will be Impacted
Negative for Investment Sentiment in India
Negative for Indians living in UK
Auto and IT Services export to UK will be Impacted
Metal and Garment Industry will be affected
25
Conclusion
Short-Term Negative Impact
Brexit has more Negative Impact on EU rather than on UK
Long-Term Impact will be Positive for UK
UK to pay a "divorce bill", reportedly of up to 52 BN
Short-Term Indirect effects could lead to almost 71,000 job losses and 10
billion pounds of tax loss annually
UK has to agree separate Trade Deals with Various Countries, including EU
Countries, India, China, OECD Countries etc.
UK's future relation with the EU should be based on Switzerland's Model
26
Conclusion
Brain-Drain
As 16% of Universities Grant comes from EU
Impact on Immigrants
Brexit could move EU towards Protectionism and further
Split (Frexit)
Weaker Pound Sterling

Boosting Exports
Inflationary
Rise in Production Cost
Increase in Wage Hike
Production Cost set to Rise
Effect on Living Standard across Globe
27
References & Sources
https://www.britannica.com/topic/European-Union
http://www.nationmaster.com/country-info/stats/Economy/GDP#1963
https://www.nytimes.com/interactive/2016/06/24/world/europe/how-britain-voted-brexit-referendum.html?_r=0
http://www.jagranjosh.com/articles/brexit-a-take-on-britain-in-eu-mba-case-study-1472472360-1
http://www.tradingeconomics.com/germany/gdp
https://www.ecb.europa.eu/stats/balance_of_payments_and_external/external_debt/html/index.en.html
http://www.imf.org
http://www.bbc.com
Wikipedia / Google
http://data.worldbank.org/
https://www.ft.com/content/0260242c-370b-11e6-9a05-82a9b15a8ee7
https://www.theguardian.com/business/2016/jul/08/brexit-fallout-the-economic-impact-in-six-key-charts
http://economictimes.indiatimes.com/wealth/invest/how-brexit-will-impact-the-indian-market/articleshow/52912741.cms
https://swarajyamag.com/economy/10-implications-of-brexit-for-india
28
Thank You
Q&A
29

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Macroecono

1. Great Britain (UK) Brief Introduction

2. Background European Union Formation

4. How European Union works

5. Factors of UK's exit from EU

7. Effects of Brexit on India

Formed in 1707, Regrouped in 1922 after Secession of

Constitutional Monarchy with Parliament

5th Biggest Economy of World

11th Largest Country in Europe

Fourth Most Densely Populated in EU

London - Global Financial Hub

Human Development Index 14th in World

Part of EU (Formerly EEC) Since 1973

Decided to leave EU 23 June 2016

Service Sector contribution to GDP 73%

Major Industries (Auto, Aerospace, Pharma, Agriculture)

UK entered Recession in 2008 for the first time since 1991

External Debt $ 9.6 TN (Second Highest in world after US)

London's financial institutions providing sophisticated

22% People are below Poverty Line

Unemployment Rate 2015 5.3% (Seven Year Low)

Unemployment Rate 2015 14.2% in 18-24 Year Age Group

Government Debt 87.5% of GDP in 2015

In 2013 Lost AAA Credit Rating with Moody & Finch

Fastest Growing Nation in G7 and Europe

Wage Growth 3% Annual (Higher than Inflation)

1986 Portugal Spain

1995 Sweden Finland

Till 2013 total 28 countries were joined EU as 7

This would help make small countries more competitive in the

Common currency for EU Euro

Although EU failed to keep above objectives as Italy & Belgium

World GDP 2015

Rest of the world; 16%

90% 21% 23%

30 million British People Voted

Overall Turn out was 71.8%

England & Wales people chose to Exit EU

Scotland & Ireland people chose to stay in EU

Prime Minister David Cameron stepped down

Theresa Mary May became the New Britain Prime Minister

Scotla 62% 38% No 47

Starting Point - 2009 during global slow down

IMF & EU have to Bail-out PIIGS Countries

(Portugal, Ireland, Italy, Greece & Spain)

Euro plunged to 4 year low against USD

2014 Ukraine Crisis started

Crimea annexed by Russia post Referendum

Refugee Crisis from Middle eastern Countries

Britain among one of Highest contributor to EU Budget

Rise of Protectionist Phenomenon

Economic Threat from Eastern Europe Countries

Deregulation laws defined & controlled by EU

People perception UK finances used to accommodate interests of EU

Unemployment 9.6% 4.8% Monthly

Inflation 2% 1.8% Monthly

Govt. Debt to GDP 90.7% 89.2% Yearly

Low Negotiation Increase in

Additional exports Weaker Pound

Overall GDP will Increase

Short term Unemployment