SpotlightJuly2016

By Katie Davis T he majority Brexit referendum vote shook up markets and lowered growth forecasts for Britain and, to a lesser degree, the other 27 members of the European Union (EU). Economists say that means central banks are now going to be forced to keep their massive stimulus efforts in place for even longer than predicted to help keep the global economy afloat, something that they have been doing since the 2008 financial crisis. Some economic experts are also saying that many gov- ernment’s central banks may have to look to new stimulus packages to keep their economies moving in a positive direction and this may include additional interest rate cuts. While others say that lower interest rates are just masking the problem and creating bubbles in financial markets Britain’s was not the only one affected by the Brexit as the reaction of Britain’s vote will impact governments and fiscal policy all around the world.

Do not get us wrong, the sky is not falling and this is nothing like the economic shock wave that followed the collapse of U.S. investment bank Lehman Bros. in 2008, which caused credit markets to freeze and central banks had to step up with aggressive measure to keep the finan- cial system functioning. Holger Schmieding, chief economist at Berenberg Bank had this to say about the Brexit vote, “It is a significant re-pricing, but financial markets are not seizing up.” So central banks aren’t likely to offer big amounts of emer- gency stimulus very soon for a couple of reasons. First being, that many governments have injected or are currently injecting massive amounts of stimulus money into their economies. The European Central Bank (ECB) has cut its main interest rate to zero and is pouring almost 2 trillion dollars (1.74 trillion euros) into the banking system by purchasing government and corporate bonds with newly printed money. This follows similar moves by the U.S. Federal Reserve and

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SPOTLIGHT ON BUSINESS • JULY 2016

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