How Will British Vote Affect Augusta’s Economy?

June 28, 2016|
Simon Medcalfe

Simon Medcalfe

By Gary Kauffman

Last week’s vote in Great Britain to leave the European Union (EU) has filled the internet and airwaves with dire warnings about a global economic downturn, but a local economist believes the impact in the Augusta area will be short term.

“People are going to be impacted in the stock market, but most of that will be very short term,” said Simon Medcalfe, associate professor of finance in the James Hull College of Business at Augusta University. “In the long term, things will return to normalcy.”

Britain’s decision to leave the EU – known as Brexit, a shortening of Britain’s exit – has created shockwaves in stock markets around the world, including the United States. It has also caused economic fallout in England, and a threat by Scotland to seek independence from Great Britain so it can rejoin the EU.

Since the United States as a whole and the CSRA particularly do a minor amount of export and import business, Medcalfe expects little impact locally, other than some stock market volatility.

“It’s fun to watch from the sidelines unless you’re planning to retire next week,” he said.

Mike Herrington of Herrington Financial Services in Augusta believes Brexit may even have a positive effect on the domestic stock market.

“The equity markets in the United States have been overvalued and are poised for a downturn,” he said. “This may be the start of that correction.”

He said he engaged in conversations about Brexit for a month before the vote, and some made changes to their portfolios while others preferred to play a waiting game.

The wild card in the scenario is if other countries follow suit in leaving the EU.

“If the European Union broke up it would impact the global economy,” Medcalfe said. “But I don’t think that will happen.”

But it is that uncertainty, as well as the unknown timeline for England’s exit, that creates an unstable economic situation.

“It’s that uncertainty that creates the volatility,” Medcalfe said.

A domino effect of other countries leaving the EU could take Herrington’s scenario of a stock market correction too far.

“There’ll be a lot of emotion kick in at that point,” he said. “It’d be healthy for us for the stock market to correct 10 or 15 percent – if we can stop it then. That’s the danger of a domino effect on a downhill slide of the equity market.”

But Medcalfe thinks America’s attention span with Brexit will be short.

“America doesn’t trade as much with other countries as the rest of the world does,” he said. “Come fall and winter, it’ll be largely forgotten in America.”

Leave a Reply