- U.S. economic growth in a modest upswing
- Brexit unlikely to significantly affect U.S. economy
- European growth will slow due to Brexit
In a global sea of economic and political turmoil, the United States stands out as an island of relative tranquility. An already anemic European economy, now confronted, will certainly slow further. Japan, is facing renewed recession concerns. China’s economy continues on its multi-year slowing trend, as policymakers struggle to cope with the transition from a manufacturing-led economy to one based more on consumption and services.
After a sluggish start to the year, growth appears to be on the upswing in the U.S. Job gains, remain solid, housing continues to grow, and consumer spending is regaining momentum. Indeed, the latest data underscored the resilience of the U.S. economy, which although less than historical standards, remains the envy of the developed world.
It’s still too early to fully assess the impact of last month’s surprising vote by Britain to leave the European Union, but the adverse effects of Brexit will cause the UK and other European economies to slow noticeably. Both the UK and Europe are facing a lengthy period of the unknown. Outside of Europe and the UK, the direct global impact should be fairly limited. The UK accounts for only about 2.4% of world merchandise trade and, for most economies around the world, trade links with the UK are small.
The main channel through which Brexit could have an impact is weaker confidence. Given the event’s unprecedented nature, this uncertainty is likely to weigh on an already slow European and UK growth environment through reduced spending and investment.
Against this backdrop, the U.S. is better positioned relative to its global peers. We believe the overall impact to U.S. GDP will be modest. While the U.S. will not be immune to the difficulties caused by events in Europe (since less than 15% of GDP is derived from trade with other countries), our domestically focused economy is fairly well insulated.
The U.S. economy was not receiving much help from the rest of the world before Brexit, and given we expect domestic demand to remain solid it should be enough to mitigate the external headwinds. U.S. economic growth has powered through a number of overseas risks in the seven years since the recession ended, and we expect it will weather this one as well.
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