On July 1, Daniel Nenni posted his thoughts on the impact of Brexit (the vote by the UK to leave the European Union) on semiconductors. In general I agree with his points. Below is my take on the issue.
The long term impact of Brexit is uncertain. The UK will likely negotiate a trade agreement with the EU which includes free trade between the two entities but not the free movement of people. Scotland may vote to leave the UK in order to join the EU. A 2014 referendum in Scotland was close, with 45% voting to leave the UK. There is a possibility other EU member nations may vote to leave. Italy, France, Sweden, the Netherlands, Austria, Finland and Hungary are mentioned as potential candidates. However, opinion polls show a majority of people in each of these countries favors staying in the EU.
The International Monetary Fund (IMF) has lowered their outlook for World economic growth in 2016 and 2017 primarily due to Brexit. The July 2016 IMF forecast calls for World GDP growth of 3.1% in 2016 and 3.4% in 2017, each down 0.1 percentage points from the April 2016 IMF forecast. The most significant change is the UK forecast with 2016 GDP growth down 0.2 percentage points and 2017 down 0.9 percentage points compared to the April forecast. Other forecasters are more pessimistic. Scotiabank expects zero UK GDP growth in 2017. The table below compares recent forecasts for UK GDP growth with forecasts made prior to the Brexit vote.
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