The Brexit – British exit – from the European Union remains one of the most highly publicized events in recent history. Numerous studies have been conducted by the University of Oxford, and Reuters Institute detailing how much importance the press gave to the Brexit issue a.k.a. the EU referendum. According to analysis over a 4-month period, some 2,378 articles were analysed. 27% of them were in favour of a Bremain (Britain remains in the EU), and 41% were in favour of a Brexit. The negative tone of the Brexit campaign punctuated thousands of published articles, as the sharp political divide split the UK electorate down the middle.
UK media outlets in favour of a Brexit included the Daily Express, the Daily Mail, the Sun, the Daily Telegraph, and the Times. Newspapers preferring a Bremain outcome included the Daily Mirror, the Guardian, and the Financial Times. The key issues driving the Brexit saga among conservatives were restricted to: migration, regulations and sovereignty. On the flipside, Labour cited economy and sovereignty as the main concerns. By the end of the Brexit mudslinging contest, the final votes were tallied in favour of a Brexit. The EU referendum results read as follows:
- 51.9% in favour of leaving the European Union with 17,410,742 votes
- 48.1% in favour of remaining in the European Union with 16,141,241 votes
The margin was 52%/48%, with most voters inWales and England preferring to leave the EU (53.4% versus 46.6% for England, and 52.5% versus 47.5% for Wales). At the time, nobody anticipated precisely what would happen with sterling. The Brexit referendum took place on June 23, 2016. At that time, the GBP/USD pair was trading around 1.47. Shortly thereafter, sterling crashed to a 31-year low, sending the UK economy into a tailspin. The short-lived depreciation of the GBP – relatively speaking – had a major impact on imports, exports and economic sentiment. When the GBP weakens relative to its peers, imports become more expensive, while exports tend to flourish. Unfortunately, in the UK, the problem was compounded by the fact that multinational companies were planning to close shop in the London metropolis and elsewhere and relocate to other European capitals. This domino effect – particularly in the financial sector – further undermined the GBP.
According to Article 50 of the Lisbon Treaty, the UK Prime Minister – Theresa May – officially gave notice of the UKs intent to leave the EU. The negotiation timeframe is limited to 2 years, which placed the UKs departure at March 29, 2019. Brussels recently approved guidelines for additional negotiations between the UK and the EU. The UKs Brexit secretary, David Davis and the EUs negotiator, Michel Barnier thrashed out agreements vis-à-vis the state of current negotiations. Detailed talks are ongoing, and a Political Declaration on the Framework of Future Relations is being worked on. The 21-month transitionary period post-Brexit will be finalized by June 2018. This intensive divorce settlement between these major European power blocs has boiled down to 3 contentious issues: Rights of EU citizens in the UK and vice versa, financial obligations for Britain Post Brexit,and the border issues and common travel areas.
How Is the GBP Performing in the Wake of Brexit Turbulence?
The above graphic represents the performance of the GBP/USD pair since August 2016. Post-Brexit blues rattled sterling and sent it plunging to multi-decade lows. However, the resilience of GBP has shone through as evidenced by the dramatic strengthening of sterling over the past 2 years. The uptrend is a testament to UKs economic strength in the face of overwhelming geopolitical uncertainty. However, in between the whipsaw movements of GBP, there are dramatic price fluctuations which lasted for several weeks at a time. This degrades the stability of international trade, money transfers and economic activity in the United Kingdom.
Consider for example the dramatic price drop from September 6, 2016 (1.34) to 1.21 on October 11, 2016. Similar trends are evident on September 15, 2017 when the GBP/USD pair was trading at 1.36 to October 6, 2017 when it was trading at 1.31. A sharp appreciation of the sterling took place between December 15, 2017 and February 1, 2018 when it rose from 1.33 to 1.43, before settling around the 1.40 range recently. Sterling has traditionally been a stable currency; however, the Brexit saga has upended that stability with significant instability over the past 2 years.
Anything Can Affect the Stability of GBP Currency Pairs
For many folks, it appears as if the Brexit negotiations are all over the map. At some points, sentiment indicates that consensus has been reached, yet something transpires to throw things for a loop. This is immediately evident in the exchange rate of the GBP/EUR, GBP/USD, GBP/JPY and others. Buying and selling behaviour of sterling, especially among speculators is heavily dependent upon the nuanced statements, sentiments, and media coverage of meetings taking place between David Davis and Michel Barnier. Anything that sounds positive is generally perceived as a bullish indicator for GBP, while any disagreements on key topics can send the GBP lower.
Forex buying/selling behaviour is heavily affected by the Brexit saga. Matt from Money Transfer Comparison, the editor of the company, indicated that the past few months have reflected lacklustre trading in GBP, and interest in reading about money transfers to/from the UK. It appears that many folks in the UK and in Europe cashed out before the Brexit voteswere cast on June 23, 2016 and enjoyed the relatively strong position of the GBP/EUR at the time, or they let it ride, and are now unlikely to make any major financial decisions (such as big transfers, remittances, sales of assets in the UK/EU etc.) for the time being.
The GBP/EUR currency pair is hovering in the region of 1.14 and thereabouts. On 23 June 2016, the GBP/EUR pair was trading at 1.30999,and has lost approximately 12.97% in two years. To put things into perspective: a UK property worth £500,000 would have fetched €655,000 on June 23, 2016. Today, that same property is worth €570,000. That explains why UK residents are not cashing in their GBP for EUR just yet. From the European perspective, it’s a wait and see game. If GBP weakens, it may be worthwhile waiting before buying into the UK market.
Côte d’Ivoire: Robust growth under the looming threat of climate change impacts
According to the Economic Update for Côte d’Ivoire, published today, the short- and medium-term outlook for the Ivorian economy remains positive. The economy is expected to maintain a steady trajectory, with GDP growth of 7 to 7.5% in the coming years. Titled “So Tomorrow Never Dies: Côte d’Ivoire and Climate Change,” the report highlights the urgent need to implement measures to ensure that climate change impacts do not imperil this economic progress and plunge millions of Ivorians into poverty.
“The solid performance of the Ivorian economy, which registered growth of almost 8% in 2017, is essentially due to the agricultural sector, which experienced positive climate conditions. The economy also benefited from a period of calm after the political and social instability of the first half of 2017 and from more favorable conditions on international markets,” said Jacques Morisset, Program Leader for Côte d’Ivoire and Lead Author of the report. “The Government also successfully managed its accounts, with a lower-than-expected deficit of 4.2% of GDP, while continuing its ambitious investment policy, partly financed by a judicious debt policy on financial markets.”
However, the report notes that private sector activity slowed in 2017 compared with 2016 and especially 2015, which may curb the pace of growth of the Ivorian economy in the coming years. Against the backdrop of fiscal adjustment projected for 2018 and 2019, it is critical that the private sector remain dynamic and become the main driver of growth. This is particularly important in light of the uncertainty associated with the upcoming elections in 2020, which could prompt investors to adopt a wait-and-see approach.
As economic growth in Côte d’Ivoire relies in part on use of its natural resource base, the authors of the report devote a chapter to the impact of climate change on the economy. They raise an alarming point: the stock of natural resources is believed to have diminished by 26% between 1990 and 2014. Several visible phenomena attest to this degradation, such as deforestation, the depletion of water reserves, and coastal erosion. According to the Intergovernmental Panel on Climate Change (IPCC), climate change could reduce GDP across Africa by 2% to 4% by 2040 and by 10% to 25% by 2100. For Côte d’Ivoire, this would correspond to a loss of some CFAF 380 billion to 770 billion in 2040.
“This report sounds an alarm in order to spark a rapid and collective wake-up call,” said Pierre Laporte, World Bank Country Director for Côte d’Ivoire. “Combating climate change will require prompt decisions and must become a priority for the country to maintain accelerated and sustainable growth over time.”
The report pays special attention to coastal erosion and to the cocoa sector, which represents one third of the country’s exports and directly affects over 5 million people. With 566 km of coast, Côte d’Ivoire now boasts a coastal population of almost 7.5 million people, who produce close to 80% of the national GDP. Two thirds of this coast is affected by coastal erosion, with severe consequences for the communities and the country’s economy.
The Ivorian Government, which is already aware of this challenge and has prepared a strategy to confront it, must expedite its implementation. This would have the two-fold effect of developing a “green” economy and creating new jobs.
A future of work based on sustainable production and employment
On the first Saturday of July each year, the international community celebrates the International Day of Cooperatives. This year’s theme, Sustainable consumption and production of goods and services is timely, as the ILO works towards a future of work that is based on sustainable production and employment models.
As head of the ILO’s Cooperative Unit, I have witnessed firsthand the positive impact of cooperatives’ commitment to sustainable consumption and production.
In Northern Sri Lanka, for instance, after years of civil war, I saw how cooperatives helped build the resilience of local communities.
A rapid assessment at the start of the ILO’s Local Empowerment through Economic Development project (LEED) indicated that cooperatives were the only “stable” structures present in Northern Sri Lanka before, during, and after the conflict. Since 2010, the project has been supporting agriculture and fishery cooperatives by securing fair trade certification for their products and helping them establish market links.
I’ve also listened to inspiring stories from other parts of the world of how cooperatives have joined forces to contribute to sustainable consumption, production and decent work – often through cooperative-to-cooperative trade.
Some of these stories were shared at a recent meeting in Geneva of cooperative and ethical trade movements.
We heard how Kenyan producer cooperatives’ coffee has found its way on the shelves of Coop Denmark and how biological pineapples from a Togolese youth cooperative are being sold in retail cooperatives across Italy. We heard how consumer cooperatives in East Asia have developed organic and ecolabel products, while educating their members about the working conditions of producers and workers, as well as on reducing food waste and plastic consumption. We also shared ILO experiences in supporting constituents in the field.
The emerging consensus from the meeting was that cooperative-to-cooperative trade can help lower the costs of trade, while ensuring fairer prices and better incomes for cooperative members and their communities. Opportunities exist not only in agricultural supply chains, but also in ready-made garments and other sectors.
Cooperatives at both ends of the supply chain have been joining forces to shorten value chains, improve product traceability and adopt environmentally-friendly practices. At the ILO we have been working with our constituents to improve the social and environmental footprint of cooperatives around the world.
As the ILO continues to promote a future of work that is based on sustainable production and employment models, a priority for us in the coming years is to facilitate the development of linkages between ILO constituents and cooperatives. The aim is to encourage joint action towards responsible production and consumption practices, the advancement of green and circular economies and the promotion of decent work across supply chains.
Mongolia’s Growth Prospects Remain Positive but More Efficient Public Investment Needed
Mongolia’s economic performance has improved dramatically with GDP growth increasing from 1.2 percent in 2016 to 5.1 percent in 2017 and 6.1 percent in the first quarter of 2018. While short- and medium-term economic prospects remain positive, Mongolia faces core structural vulnerabilities that hinder its potential, according to Mongolia Economic Update, the latest World Bank report on Mongolia’s economy launched here today. The report also highlights the importance of improving efficiency of its public investment programs given extensive consequences from the overambitious and unrealistic investment programs implemented in the past.
“Last year was a good year for Mongolia with favorable commodities prices and the successful implementation of the government’s economic recovery program,” said Dr. Jean-Pascal N. Nganou, World Bank Senior Economist for Mongolia and Team Leader of the report. “This resulted in improved fiscal and external balances, triggering a slight decline of the country’s public debt.”
The recovery is expected to accelerate with a GDP growth rate averaging more than 6 percent between 2019 and 2020, driven by large foreign direct investments in mining. Other than agriculture, which was severely affected by harsh weather conditions during the winter, most major sectors including manufacturing, trade, and transport are expected to expand significantly. On the back of increasing exports and higher commodity prices, economic growth will continue to have a strong positive impact on government revenue, contributing to the reduction of the fiscal deficit.
The unemployment rate dropped to 7.3 percent in the last quarter of 2017, compared to 8.6 percent a year earlier. Still, it increased to 9.7 percent in the first quarter of this year, reflecting Mongolia’s highly seasonal employment patterns due to difficult working conditions in the winter, especially in construction, agriculture, and mining.
The report highlights possible short- and medium-term risks including political risks, regional instability, climate shocks, and natural disasters. The most critical risk identified is a sudden relaxation of the government’s commitment to full implementation of its economic adjustment program supported by development partners.
In addition, the economy remains vulnerable to fluctuations in global commodity prices and a productivity gap. The best long-term protection against these two vulnerabilities is the diversification of the Mongolian economy.
“To create a strong buffer against economic vulnerabilities, the government and donors should give a high priority to economic diversification that helps counter the ups and downs of the mining sector. Investing in human capital and strengthening the country’s institutions are the best way to support diversification, together with sound investments in crucial infrastructure,” said James Anderson, World Bank Country Manager for Mongolia.
The report takes a closer look at public investment programs implemented over the past five years, which surged until 2015, contributing to large increases in public finance deficits and the public debt. Mongolia needs to review and reshape its public investment policies and decision-making processes to improve efficiency of public spending, including clear project selection and prioritization criteria, as well as proper maintenance of existing assets.
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