NEW YORK—A week after Britain’s shocking vote to leave the European Union, markets seem to have pushed the pause button.
After a two-day spree of near panic selling that wiped out an unprecedented $3 trillion from global markets, investors, analysts and pundits in the U.S. and abroad spent the week following the vote collectively revising their knee-jerk reactions to what has become known as the “Brexit” vote.
Markets closed out the week just a hair below their pre-vote level, with the S&P 500 index rebounding from a 5.3 percent drop to finish just 10 points below where it started.
A week after Britain’s historic “leave” vote, what’s the outlook for markets and the economy? Is the sky really falling, or are there opportunities, if not silver linings, for investors?
Here are five ways markets are rethinking the impact of the unprecedented move by an EU member to begin unraveling the nearly 60-year-old project to bring peace and prosperity to Europe.
European Fallout
The impact will vary widely depending on your distance from the Brexit bomb’s crater.
Worst off, predictably, will be Britain. Its finance minister, George Osborne, warned Friday that the referendum is “likely to lead to a significant negative shock for the British economy.” The Institute of International Finance, a think tank for the banking industry, predicts Britain will slide into recession in the second half of this year.
Fallout in the eurozone will be less, but still significant. Brad Setser at the Council on Foreign Relations reckons that just the uncertainty over Britain’s departure from the trade block “will knock a cumulative half a percentage point off euro area growth over the next two years.”
The IIF, meanwhile also predicts a hit to the 19 eurozone countries: It forecasts growth there will fall to 1.4 percent next year from 1.7 percent in 2016.
Global Fallout
Outside Britain and the euro zone, a consensus is emerging that the damage will be contained.
While the direct impact on the U.S. of weaker economic growth in U.K. isn’t large—American exports to Britain account for only around 0.5 percent of U.S. GDP—the primary economic challenge is expected to be uncertainty.
