Brexit Turmoil | November 16, 2018 | Market Thoughts

After a year and a half of worrying about Brexit, a deal has been reached. Turmoil around the EU is not decreasing…


While a deal has been reached, it still needs to be approved by parliament. It is unlikely parliament will pass Brexit in it’s current form. It is also becoming more likely that a vote of no confidence will be reached against Theresa May. If that happens, the additional pressure will make a Brexit deal even tougher to agree upon.


Italy is proposing to break budget constraints mandated by the EU. The Italian government has opted to ignore these rules. The EU needs to determine if they will levy fines against Italy for breaking spending levels or allow the breach. Italy is successfully making it appear as though the EU is restraining their economy. This appears to be heading toward an exit from the EU for Italy.


Unexpectedly, German GDP slipped into negative territory this last quarter. It fell on auto industry concerns. A combination of trade tariff concerns and new auto emission standards. Germany is expected to emerge from this as a single quarter of negative growth. Global growth has been slowing calling its emergence into question.


Turmoil in the EU has increased the risk of recession on trade tensions and a broken commerce system. Short-term turmoil in Germany may not seem like much of a concern. To the contrary, GDP had to have been running low enough to be susceptible to this risk. Germany has been the bright spot in the EU, but at what cost? Their strangle hold on the EU through austerity has left their counterparts unable to sustain economic growth. The pain felt in the EU has yet to reach the US as domestic demand has remained strong. The major question is how long the US economy can withstand weakening global demand?


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