By Mahima Kapoor
The U.K. Parliament, in a landslide vote, rejected the Brexit deal that Prime Minister Theresa May painstakingly chalked out with the European Union. The concern for the emerging markets—including India—is what happens to the trade deals with the bloc and Britain separately in case of a hard Brexit, according to experts.
“You need to ask the question if an economy the size of U.K. can go through such a big adjustment and if anyone can benefit from it. History suggests that no one can benefit from it,” said Jahangir Aziz, head of emerging markets economic research at JP Morgan, in a conversation with BloombergQuint.
Raj Bhala, professor at the University of Kansas, agreed, but added that India should take this as an opportunity to reassess its business and trade deals with both the parties, now.
The important opportunity for India is to renegotiate its goods and services schedule under the World Trade Organisation with both the U.K. and EU. Many other countries are doing that, or thinking about doing that, including the U.S.
Raj Bhala, Professor, University Of Kansas
The humiliating defeat on Tuesday evening, the biggest for any government in modern history, leaves May’s divorce agreement with the European Union all but dead and Opposition leader Jeremy Corbyn trying to force a general election. While May believes she will survive Wednesday’s no-confidence vote, it’s unclear how long she—or her Brexit strategy—will last. This, according to Aziz, may change the Brexit impact estimated by the Bank of England and the U.K. Treasury.
As per the data published in the U.K. over the last two-three months, growth and manufacturing has been slowing down while the sentiment has been worsening, he said.
This, however, is just one of the headwinds emerging markets are facing from the developed countries. A slowdown in the European economy and trade tensions between the U.S. and China are cutting into global demand, said Aziz, adding that this will be offset by the fact that the U.S. Federal Reserve and the European Central Bank are likely to be much more flexible than what they had envisioned before.
That flexibility provides some space for emerging markets to breathe.
Jahangir Aziz, Head Of Emerging Markets Economics, JPMorgan
Watch the full conversation here: