HSBC: Brexit may be merely the 'precarious calm' before the real storm

storm clouds

REUTERS/Edgar Su

We have seen a swathe of reports from investment-bank economists this week, all of which say something similar: Britain's vote to exit the European Union will dampen economic activity and wipe a percentage point or more off the UK's gross domestic product.

Some even think the UK is heading into a recession. For instance, Citi analyst Ebrahim Rahbari and his team said Thursday that Rahbari was revising down UK GDP growth "sharply" by 3 percentage points over three years, putting Britain at risk of a recession in the second half of this year.

But Karen Ward, the chief European economist at HSBC, says that might be the good news.

In a note to investors dated Tuesday, she downgraded her 2017 eurozone GDP growth forecast to 1% from 1.5%. But she also noted that the slowing growth would exacerbate the problems that inspired the vote for the so-called Brexit in the first place: a poor underclass that is alienated from the economic elite and that is using its power at the ballot box to be as disruptive as possible.

HSBC Karen Ward

REUTERS/Edgar SuWard is arguing that the Leave majority could become worse off as the economy falters, making their anger at the elites even worse than it is now. In a video essay for HSBC clients she said Brexit may merely be a "precarious calm" before something even worse happens:

"This, overall, is still very, very bad news for the outlook for Europe."

"It's again a story of managing to keep the recovery hobbling along but due to much more stimulus both from the ECB and government spending. Less private sector expansion, more public sector expansion, and all the while we're just muddling through. We're not solving some of the key underlying problems, such as income inequality, high unemployment, and a disenfranchised youth — which is what is fuelling support for populist parties around Europe. And as we've seen with the UK last week those risks can materialise — so this remains a very precarious calm."

Here is a map from the research-and-consultancy firm Eurasia Group of European countries that look most politically unstable. Right-wing and anti-immigrant parties in France, Slovakia, the Netherlands, Denmark, and Sweden are asking for their own referendums:

europe

REUTERS/Edgar Su

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See Also:

• Britain is dragging the eurozone into an impending crash — and these stats come from *before* the Brexit vote

• The Bank of England's doom-laden predictions are beginning to come true

• Zlatan Ibrahimovic's Manchester United pay packet is getting killed by Brexit

SEE ALSO: ANALYSTS: Brexit will bring recession ... and contagion