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In the meantime...there’s more to life than Brexit

Brexit is on everyone's mind and remains the main preoccupation of British citizens. Since the negotiations began, the future of the United Kingdom has been hanging on the prospect of an agreement, with the mood of British consumers swinging between a possible agreement and the no-less-improbable “no deal”. 

Brexit is on everyone's mind and remains the main preoccupation of British citizens. Since the negotiations began, the future of the United Kingdom has been hanging on the prospect of an agreement, with the mood of British consumers swinging between a possible agreement and the no-less-improbable “no deal”.

As Teresa May went on a veritable European tour to get another delay, the Twenty-Seven met Wednesday in Brussels, and set 31 October as the new date for the United Kingdom’s exit from the EU.

Emmanuel Macron wanted a short delay, but was not able to force it. He nevertheless obtained guarantees aimed at protecting the functionning of EU institutions. Brexit, Brexit and more Brexit.

But in the meantime, analysts weigh up other economic realities and try to understand the underlying trends that are driving international activity. And we learn from Forbes Magazine that because the Federal Reserve held interest rates steady for the rest of the year, maybe even through 2020, “Latin American countries are a better growth story for emerging market investors.” And the Forbes journalists go even further: “Even Venezuela's GDP will grow 6% next year.  For countries with much deeper securities markets, like  Brazil, GDP goes from 2.2% growth to 2.6%. Columbia goes from 3.5% to 4%. Argentina goes from recession to 2.2% growth next year, a total economic boom if that forecast is proven right. Even Mexico grows despite a general slowdown in its main market, the U.S. Mexican GDP is seen going from 1.8% this year to 2% in 2020. All told, Latin American GDP improves in 2020 thanks to Mexico, Brazil, Colombia and Argentina, growing at 2.6% instead of the 2% expected this year.

That's better than Asia-Pacific growth rates, which are flat at 5.3%.” Other investors also recognize this. “Our exposure remains limited in emerging markets, but Brazil looks like an opportunity to us,” says Bozidar Jovanovic, First Vice President and Portfolio Strategist for Bank Leumi in New York. Latin America therefore seems attractive particularly because it has a long way to go. All its major economies were either in crisis a year ago, are still in crisis, or are coming out of a recession. Only Mexico has remained stable, thanks to its main trading partner north of the Rio Grande.

Nevertheless, this digression toward the southern hemisphere is only temporary. Brexit quickly comes up again in the debates, which point out that a “no-deal” would benefit China and the United States. This is what the daily newspaper Le Figaro attempts to articulate: “The European Union and some other UK trading partners, including Turkey, would lose a lot”, a UN report indicated on Tuesday. An abrupt divorce between London and the European Union “would have a significant impact on the terms of access to the British market, from developing as well as developed countries”, predicts a study by the UN Conference on Trade and Development (UNCTAD). The British market represents around 3.5% of global trade, and last year the UK imported some $680 billion (€604 billion) of merchandise from the rest of the world, according to the document. More than half of those exports come from European countries, which consequently risk losing nearly $35 billion in the event of a “no deal”, according to the report.”

The UK is an important trading partner for many emerging countries, whose exports have benefited until now from very favourable terms of access to the British market, thanks in particular to preferential regimes from the EU, the UNCTAD points out. In a “no deal” scenario, without a transition period to negotiate possible bilateral agreements, Turkey would be second, behind the EU, on the list of losers, with exports to the UK cut by $2.4 billion. South Korea, Norway, Iceland, Cambodia and Switzerland would follow, according to the report.

Finally, while the PACTE law was presented to the Assembly this Thursday, the Culture Banque blog slipped us this piece of information into its latest instalment: “On 28 March, Bruno Lemaire, Minister of Finance, announced his desire to create a new savings product in order to finance French SMEs (small and medium enterprises). The objective of this project is to encourage households to invest in French SMEs in order to participate in their development”. He added that “what we know for now is that there is no guaranteed return on this investment”. The companies would be selected by the BPI (Banque Publique d’Investissement), a government institution that finances and supports French companies. In fact, Nicolas Dufroucq, General Manager of Bpifrance, is working on the project. This investment could be incorporated into a PEA (plan d’épargne en action, or savings plan invested in equities), with income exempt from income tax if held for at least five years, or a life insurance contract. It would be subject to withholding for social charges, but not for income taxes.

In the meantime, the world keeps moving.   Christian Moguérou

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