Economic expert Moez Labidi gave an exclusive interview to African Manager where he said the Brexit impacts Europe and the UK through two effects. The first is immediate and the second is in the medium term.
For the immediate effect, the expert and economic analyst noted that it is easy to observe through the extent of volatility in the capital markets: a historic drop in the pound that has never been reached for more than 31 years and the soaring price of gold, for which the British have increased 32% their purchases.
On the world market, the Brexit also caused panic as portfolio investors had deserted investments and assets in euros and pound to position on gold and the dollar, considered safe-haven assets. The immediate effect, however, could, according to Labidi, be tempered by central bank intervention through the purchase of decreasing assets (euro, pound sterling, sovereign bonds…).
The other effect of Brexit is in the medium term. At this stage, the economy analyst said the Brexit could cause the renegotiation of the agreements signed for more than 40 years between Europe and the United Kingdom. The British will also find themselves forced to renegotiate certain agreements between the European countries and the EU partners, including Tunisia.
“The entry in the re-negotiation will negatively impact economic growth not only European but also British because this process of re-negotiation is generating uncertainties and may curb investment initiative and delay household consumption strategies, resulting in a negative effect on growth in Europe and the UK.
However, he said that the decline of the pound sterling could mitigate the impact on growth through improved competitiveness of British exports. It could also have a positive effect on fiscal policy in so far as the EU offers more output margins to the British because they will stop their contributions to the EU budget.
Regarding inflation, Moez Labidi noted that the Brexit can only have a negative effect due to the decline of the pound and the euro, but stressed that at the level of the current account, the UK exit will lead to falling exports of financial services to the eurozone. He recalled, in this regard, that the British are recording a surplus of EUR 20 billion on exports of financial services.
Referring to the impact of Brexit on the Tunisian economy, the expert noted that a positive impact on the dinar has been observed: “The Tunisian dinar has benefited from the decline of the euro to regain strength,” Labidi said, explaining that this was not the case with the dollar which benefited from its safe-haven asset status.
However Labidi did not hesitate to say that the exit of Britain from the European Union has a negative impact on the Tunisian economy through the decline in growth in the euro area.
The Brexit delays the recovery in the euro area and therefore the current balance cannot hope for an improvement in so far as exports could not start as long as the European economy is slow to show positive signs: “With the Brexit, the future of the European project is under threat, and that following the outbreak of the risk of a domino effect in Europe under the influence of populist far right parties that have been rising in elections in recent years, “he said.
Moez Labidi also pointed out that this new situation also affects the behavior of Tunisian workers abroad, who will be required to reduce transfers to their home countries for fear of unemployment or lower family allowances.
Still in the context of Tunisia, Moez Labidi has also assured that the Brexit has an immediate effect insofar as it will restrict the standardization cycle of the US monetary policy (higher interest rates by the US Federal Bank) and therefore the interest rate borne by Tunisia in international markets remains dominated only by the already high-risk premium. “The Brexit complicates the equation of the Tunisian growth,” he said in conclusion.