Director's Cut

Director's Cut: How Healthy Is the EU Without the UK?

By Jackie Greene on April 25, 2019

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Jackie Greene

Jackie is the Vice President of Economics at ITR Economics, and oversees forecasting and applied research.

With the European Union's recent decision to extend the United Kingdom's departure deadline to Oct. 31, and another round of UK voting set for the upcoming week, we need to examine the impact of the UK leaving the EU. There is a lot of speculation, which in general is not good for the financial markets or businesses trying to plan. However, these are short-term issues, and we want to look at the long view.

In the big picture, there is virtually no difference between the rate of growth for Europe Industrial Production with the UK (0.8%) and without the UK (0.9%). That is not because the size of the UK economy is inconsequential to Europe, but because the two economies are moving in tandem. The UK accounts for roughly 15.1% of the EU economy. It barely beats out France, which accounts for 14.8%, but is noticeably behind Germany, which accounts for 21.3% of the EU economy.

Another measure of economic activity is Construction. Construction for the EU28, which includes the UK, grew 1.8% during the past year. In contrast, Construction for the EU excluding the UK rose 2.3% during that same time period. However, it must be noted that the UK does not always underperform the rest of the continent; there were periods throughout the last 10 years in which UK activity moved the total higher.

The key takeaway is that both economies, the UK and the EU as a whole, are large and stable; they will move beyond the near-term speculation to prosper. Businesses will continue to be driven to turn a profit, and commerce will move past this period of instability and find ways to grow.

Look for ways to protect yourself. Ensure you have multiple suppliers and distributors to cushion yourself against any political shocks during transitions. Lead with optimism in a time when it is easy to get caught up in uncertainty and become pessimistic.

Jackie Greene
Director of Economics

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