Brexit could result in a recession in the euro area – Danske Bank

Pernille Bomholdt Henneberg, Senior Analyst at Danske Bank, now expects euro growth of 1.2% in 2016 and 0.7% in 2017.

Key Quotes

“The biggest economic impact should be through sentiment

Sentiment: We expect a very negative impact on overall sentiment and especially on business confidence, which is likely to result in lower investments. A long period of negotiations may drag out the uncertainty, but the biggest impact should be seen in a sharp deterioration in H2 16, where we expect the euro area to be in technical recession.  

Trade: We expect a direct negative impact on trade, as the trade relationship between the UK and the EU should be less beneficial than it currently is. To what extent the trade channel weakens depends on the future relationship between the UK and the EU.

Financial: European banks’ exposure to the UK is substantial and a Brexit would be costly, although it could move some financial services to the EU over time. The financial sector also accounts for a large share of foreign direct investments into the UK, which could be hurt if investors believe in a lower return on UK investments.”