24 June 2016 Insurance

EU exit will weigh on UK economy for some time: Allianz

The decision to leave the European Union (EU) will pose a significant test for the UK and the repercussions will likely weigh on the UK economy in particular for some time.

This is the opinion of Michael Heise, the chief economist of Allianz.

“The vote by the majority of Britons to leave the EU is to be respected as a democratic decision, but it does pose a severe test for the UK and the whole of the European Union with considerable economic risks,” he said.

“Politicians and investors now need to display prudence and foresight. Knee-jerk reactions should be avoided at all costs. The EU should persevere with its projects such as the completion of the Single Market.”

He added that leaving the EU is not an event but a process and many questions regarding the next steps and the new relationship between the UK and the EU remain at this point. As a result, political and economic uncertainty will persist for some time to come.

“This will keep volatility on financial markets elevated and dampen economic sentiment in both Britain and the rest of Europe. However, by acting in a constructive and collaborative manner, British and European policymakers can do much to reduce any disruptions to trade and capital flows,” he said.

“Even if the European project from now on will move forward without Britain, the UK is bound to remain a key ally of the European Union warranting close political, economic and financial ties.

“Although the repercussions of the vote are likely to weigh on the British economy in the years ahead, there are no grounds for excessive gloom about the European economy. The recovery in the eurozone is now sufficiently robust to survive this episode.”

Andreas Gruber, Allianz’s chief investment officer, added that he believes disruptions in the markets will be short term.

“In the medium- and long-term we expect bilateral agreements between the UK and the EU in order to achieve a continued prosperous collaboration. Most negative scenarios are well reflected in market prices already. Nevertheless, the vote brings with it some short-term uncertainty, and for this reason investors are assuming higher risk premiums and hence lower prices. We believe market disruptions are short-term,” he said.

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