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G20 Finance Meeting in China: Brexit Dominates Discussions

  • July 23, 2016
  • By Pavan Lipare
  • 0

The G20 finance meeting in Chengdu, China, was dominated by discussions about the potential impact of Britain’s decision to leave the EU and fears of potential protectionism in its wake. According to Phillip Hammond, the UK’s new Chancellor of the Exchequer, things will settle down once Britain presents its vision for the UK’s relationship with the EU and the world outside of it.

G20 Finance Meeting

G20 Finance Meeting and EU

Hammond went on to state that financial markets could be volatile in the years ahead, while the UK negotiates with partners outside the EU and with the EU itself. The situation regarding Britain’s relationship with the EU may become clearer as this year progresses, Hammond said after this meeting of the world’s top 20 major economies in south-west China.

It’s only a month since the Brexit vote, and already there are signs that the impact might not be the Armageddon many people forecast. Discussions between the UK and Europe’s leaders have by the large been amicable and it seems that there are not as many barriers to the UK continuing to trade with EU countries that many believed there to be.

Phillip Hammond stated to reporters:

What will start to reduce uncertainty is when we are able to set out more clearly the kind of arrangement we envisage going forward with the European Union”

 “If our European Union partners respond to such a vision positively – obviously it will be subject to negotiation – so that there is a sense perhaps later this year that we are all on the same page in terms of where we expect to be going. I think that will send a reassuring signal to the business community and to markets.”

Collectively, the G20 group believes that the decision of the British people to leave the EU will unsettle the global economy and world markets. According to Hammond the subject of Brexit had been a significant discussion topic at this meeting of the G20 finance ministers and central bankers.

G20 Meeting: Able to Handle Any Impact of Brexit

The meeting agreed that they hope to see the UK as a close partner of the EU in the future. Since both the UK and the EU are hoping the same, the likelihood of this is high. However, there many discussions and negotiations required before anything tangible happens. Nevertheless, the G20 group stated after the meeting that it was well placed to handle any potential economic or financial impact arising from the UK’s decision. It should be stressed that the decision to leave the EU was made by UK citizens and not the government.

It was also noted that there is more than just Brexit impacting upon the world economy and its markets. Rising terrorism, refugee flow and internal political issues are all contributing factors.  To put Brexit into perspective, Jens Weidmann, president of Germany’s central bank, commented that there are no signs yet that Brexit had had any effect on European economic development.

Chinese Steel Industry and Global Growth Forecast

Despite Brexit, it was agreed by the group that the global economy would improve during 2016 and 2017. Individual delegates believe that an excess supply of steel has become a global issue. This needs some attention if the steel industry throughout the world is not to suffer. They did not specifically mention cheap Chinese steel, but that is where the issue rests.

According to the IMF, its forecast for global growth is no longer valid due to the Brexit decision by the people of Britain. Its World Economic Outlook (WEO) has reduced its growth expectation for 2016 from 3.2% to 3.1% – a 3.125% reduction in growth, and globally for 2017 from 3.5% to 3.4%. It also stated that the UK would be the worst affected. The 2017 growth forecast for the UK has been reduced by 40.9% from 2.2% to 1.3% and for this year from 1.9% to 1.7%.

Bank of England Response to Brexit

However, the Bank of England has stated that it is prepared to support growth, particularly in view of the fact that the UK government is prepared to borrow at ultra-low interest rates to invest. The loss of confidence after Brexit, it claims, will not be as great as most seem to fear. The g20 finance meeting delegates appeared to understand this.

About Pavan Lipare

Pavan Lipare is a market research analyst at Market.Biz. His job description involves performing research and gathering data to market a company's products. He does it by collecting data on consumer demographics, needs, preferences, buying habits, market growth and market failure.This data is collected by a variety of methods including questionnaires, interviews, market analysis, literature reviews, focus groups, surveys and public opinion/polls. These methods even further help to determine a company’s position in the marketplace.