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The political and economic implications as well as the order of events of the Brexit are currently very hard to predict. We assume that Europe – as usual in recent years – will “muddle-through”. The ECB will not panic, but wait to assess the consequences of the UK’s choice to exit the EU. Due to Brexit we lower our 2017 German GDP forecast to 1.3% from 1.6%. About half of that is due to lower export growth. The other half of the revision results from lower investment in machinery & equipment by German corporates. All told, domestic demand should only feel a marginal impact given that the fundamental drivers – healthy labour market and construction sector – remain intact. Further topics in this issue: German consumers, labour market and Germany in the aftermath of the EU referendum in the UK.
24 June, core foreign ministers plus EU institution leaders and a Franco-German statement: The foreign ministers of the six EU founding members will be meeting in Brussels to give a clear commitment to the European integration project. In parallel, the representatives of the EU institutions — EU Commission President Juncker, EU President Tusk, European Parliament President Schulz and PM Rutte from the Netherlands, which is currently holding the EU Council presidency — will attend. Berlin and Paris and are expected to release a joint statement which should have a more political than practical character. This would be to address the immediate concern over possible contagion effects to the EU (and EMU in particular).
Few known events have dominated global financial markets the way the UK referendum on EU membership has in recent weeks. It would be wrong to think that as the event passes, all uncertainty fades. Far from it.
The EU and the UK are set to conclude a new settlement on the terms of the British EU membership. A deal on the upcoming EU summit on February 18/19 could pave the way for the in-out referendum most likely on 23 June or otherwise in early autumn 2016.