A global phenomenon which took the world by storm was Brexit. Brexit refers to decision of the United Kingdom (UK), to part ways with the European Union (EU). For going forward with this big-a-step, the public of UK was asked to vote on whether UK should remain a part of EU or exit from it (MacShane, 2016). 52% of the people voted in favor of the exit from UK in the referendum that was held in June 2016. This particular step of UK was considered as a bold move and it left its mark not over just the UK and EU, but changed the dynamics of all the nations across the globe (Hunt and Wheeler, 2016).
Even though Brexit has been a historic move for the UK, it has had its impact over Australia (Farr, 2016). This particular impact is with regards to the agricultural sector of the nation, the Australian dollar and the property market, amongst the other things. The Australian law also played its part in impact on the nation, due to Brexit. In the following parts, the impact of Brexit on the nation, with the particular reference to these points, has been elucidated and before concluding, certain recommendations have been drawn.
The reason why the impact of Brexit has to be considered with reference to Australia stems from the history of the nation. The UK has played a major role in shaping the present day Australia. The initial settlement of Europe in the nation took place in the year of 1788, when the First Fleet’s 11 ships, landed in the nation, from UK (Dunn, 2017). Till date, the nation remains the Commonwealth’s member and the head of the state of Australia is the Queen. Nearly 1.2 million of the individuals residing in the nation were born in UK (Thomas, 2015). Though, during the past few decades, the influence of UK over the financial system and economy of Australia has diminished. This is because of the strengthened ties of the nation with the wider global community, and this is with particular reference to the Asia Pacific region. And this is coupled with the strongly forged links of the UK with the rest of Europe, with a specific reference to the EU obtained membership by UK. At present, Singapore, South Korea, Japan and China are considered as amongst the top five trading partners of Australia. And due to these reasons, the impact of Brexit on the nation is expected to be negligible (National Australia Bank, 2016).
Even though the possible terms on which the exit of UK would be carried on from the EU remain unclear, it can be reasonably assumed that there would be tree broad implications of this referendum, over the agriculture of the nation. These relate to:
It is likely that the dependency of the UK over the agricultural imports from the EU would be considerably reduced due to the points stated above, with a particular reference to the trade barriers. This would open up numerous opportunities for the different countries across the globe for exporting agricultural products to UK. Though, at present, only 1.5% of the Australian agricultural exports form a part of UK and this shows that it is less likely that in the era of post Brexit, the same would be increased by an enormous degree (Keogh, 2016).
However, there have been wider implications of Brexit which suggest a trend during the past few decades whereby the international barriers with regards to the agricultural trade has had reached its limits. This also shows that a further progress with regards to reduction in the global agricultural trade barriers would be difficult in attaining.
With Brexit, Australia appears to be a more attractive location in comparison to both EU and UK, due to its demographic and economic standing in the world. The nation attracts a lot of global capital, with a particular regard to the commercial property. In a number of cases, it is likely to turn out to be the competing capital for locations of global trade. It is considered as a safe location, in the present day volatile environment. And it continues to enjoy economic growth, low sovereign risk and a high degree of stability (Conisbee, 2016).
The residential sector of the nation is also likely to see a boom. This is because till now London was being considered as the key location for the world-wide buyers. But due to the uncertainties lingering with Brexit, Australia, due to its present condition, appears to be the next best alternative. Even though these results may not be visible in the short run, but the long term impact of Brexit over the property market of Australia, remains highly positive.
The short term impact of Brexit has already been experienced by the nation in terms of the volatility in the financial markets, and this includes the fall in prices of shares, a fall in the bond yield of the nation, along with a depreciation of the AUS $, i.e., the Australian Dollar (Newman, 2016). But, the financial markets have already started recovering and stabilizing from the after-effects of Brexit (Monfort, 2017). The banks of Australia have had a limited exposure to both Europe and UK, and hence, they remain well capitalized and stable. Due to this reason, the banks in the nation have a good position, for reacting to any of the negative shocks which are born out of Brexit. Due to this, the short term impact on the financial system of the nations would be minimized (Crown Noble, 2016).
Approximately 5% of the bank funding of the Australian banks is done from the debt markets of UK. Some of the banks of the nation use UK for accessing the debt capital markets of EU. An approximate value of 45% of the debt securities in UK are raised by the banks of the nation, including the debt capital which have been accessed through such arrangements. Some scholars have raised an issue that in the post Brexit period, the funding would become costlier and even more difficult to attain. Though, due to the strong liquidity buffers of the banks of Australia, and the ability of the Reserve Bank of Australia in inserting liquidity into the financial system, as and when needed, can counter this uncertainty raised by the scholars. There has been a decline in the operations of the banks of EU and UK in Australia, after the global financial crisis, in such a manner that both EU and UK combined account to merely a 5% of the Australian banking system assets. So, for instance, if they reduce their operations in the nation, it would not have a major impact for this sector (Black and Huang, 2016).
It has been expected that the negative impact of Brexit would be concentrated in the UK. This would be in terms of low economic activity, along with increased uncertainty, with regards to less investment, lower exchange rate, lower asset prices, consumer spending and employment (The Conversation, 2016). These negated effects would enter Australia through the lower prices of commodity exports of Australia, financial links of the nation with UK, and the reduced trade between Australia and UK. These impacts are likely to be short term only as UK forms only 2.4% of the global economy; the majority of trading partners of the nation are located in Asia Pacific, and due to the limited exposure of the Australian banks. The only industry which is expected to be highly affected by the economic downturn in UK is the Australian tourism industry. 7% of the travel exports of the nation are to UK, which would be declined in this post Brexit era. Due to these reasons, the UK sterling would further be depreciated (Black and Huang, 2016).
The predictions regarding the long term or even medium term over the economy of the nation remains difficult to draw, due to the uncertainties in the post Brexit era. The impact on Australia would depend upon the following:
In case these risks are not materialized, Brexit would not impact the nation in a major way. It has already been stated that the nation has a low direct trade exposure to EU and UK. An indirect risk to the nation is born out of the major trading partners of the nation, having large exposure to UK. For instance, the largest trading partner of Australia, i.e., China, exports 15.6% of the goods to UK; USA, being the third largest trading partner of the nation, exports 18.2% of goods to UK. A reduction in the demand from UK could result in reduced demand from both these nations for the exports of Australia. Apart from these indirect and direct flow on effects, the continued worries regarding post Brexit era has the possibility of creating long-term macroeconomic concerns for the economy of the nation, due to increased uncertainties, increase in unemployment, reduced business plus consumer confidence, and the concerns regarding both international and domestic trade and growth (Black and Huang, 2016).
There may be a need for re-drafting or re-negotiating the treaties and agreements which are presently being enjoyed by the nation, with both EU and UK. The Australian tax treaties have been entered separately with UK and with individual EU members, and so, they do not require any change, due to Brexit (Craig, 2017). The discussions which have been proposed with regards to the EU/ Australian free trade agreement also remain untouched after Brexit. It is expected that the negotiations in this regard would be taken up by the trade minister of Australia with the representatives of EU within this year (Suder, 2016). There is a possibility of a separate UK/ Australia free trade agreement being negotiated (Oxley, 2016). These talks would be possible only after UK officially leaves the EU. This would enable in strengthening of the economic ties of the nation with UK, which would not be possible if UK had not separated from the EU (Black and Huang, 2016).
For the farmers of the nation, who have spoken in favor of removing the trade barriers with regards to the agricultural industry, it is time to take stock of the undisputed advancement of the recent years. And they should focus on making certain that the benefits of the trade agreements, which have been recently negotiated, are not diminished or side lined by adopting non-tariff trade restrictions (Keogh, 2016).
The risks regarding the external resources of the financial system of the nation continue to risk in post Brexit era. This highlights a need for continued reforms in the financial system of the nation, so that it could be more shock resistant, and also, resilient. After the global financial crisis, Brexit poses as another threat looming over the economy of the nation and demands reforms, on the basis of terms finalized in the post Brexit era between the EU and the UK. Due to the risk which is proposed by Brexit, there is a need for the nation to diversify the exposure to the rest of the world. This can be done by being less dependent on a single nation, for instance, China as being the key source of the future growth of nation; and being less dependent on a single industry, for instance, commodities. Hence, it is recommended that the future policies of the nation be chalked out in a careful manner (Black and Huang, 2016).
This report highlights that more or less, the impact of Brexit on the nation, is not very huge and remains marginal. The impact could only be noteworthy, if the future drawn policies by both EU and UK, in the post Brexit era, prove to be negative for Australia. Till that transpires, the impact of Brexit over Australia and its various sectors, remain negligible.
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Oxley, A. (2016) Australia should aim for a trade deal with the UK post Brexit. [Online] The Conversation. Available from: https://theconversation.com/australia-should-aim-for-a-trade-deal-with-the-uk-post-brexit-61591 [Accessed on: 08/05/17]
Suder, G. (2016) Post-Brexit, Australia’s best option is a trade pact with EU. [Online] The Conversation. Available from: https://theconversation.com/post-brexit-australias-best-option-is-a-trade-pact-with-eu-61676 [Accessed on: 08/05/17]
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