International Market Institutions, Policies, and the Impact of Brexit

This report provides a comprehensive analysis of the economic impact of Brexit on the United Kingdom, Germany, and Spain. It examines the initial effects of the Brexit vote, including changes in GDP growth, exchange rates, and stock market performance. The report delves into the specific challenges faced by each country, such as the decline in the value of the pound in the UK, the potential export tariffs for German exporters, and the vulnerability of Spain due to its strong ties with the UK. It also explores the effects on labor markets, business investments, and international trade, using figures and trends to illustrate the economic consequences. The analysis considers the impact on various sectors, including financial services and international trade, providing a detailed understanding of the complexities of Brexit and its influence on global economies. The report references multiple sources to support its claims and provide a well-rounded view of the subject.

Running head: INTERNATIONAL MARKET INSTITUTION AND POLICIES
International Market Institution and Policies
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1INTERNATIONAL MARKET INSTITUTION AND POLICIES
Table of Contents
Impact of Brexit on the economy of UK, Germany and Spain..................................................2
United Kingdom.....................................................................................................................2
Germany.................................................................................................................................4
Spain.......................................................................................................................................6
References..................................................................................................................................9

2INTERNATIONAL MARKET INSTITUTION AND POLICIES
Impact of Brexit on the economy of UK, Germany and Spain
The proposal of Brexit was first initiated on 24th June, 2016 with 51.9% of British
voters casted their votes supporting UK’s exit from European Union (Johnston and
Buongiorno 2017). The announcement of the historical events not only affects UK’s
economy but also the effects spread on other members of European Union such as Germany,
Spain and other countries.
United Kingdom
As suggested the analysts, economic output in United Kingdom after Brexit though is
disappointing but it is not disastrous. Immediately after Brexit, the economic growth rate in
Britain jumped to 0.1 percent from a rate of 0.4 percent in the beginning of the year. The
economic activities in UK were adversely affected during this time. Despite economic
slowdown of UK, the economy was not placed much behind the other EU nation (ft.com
2019). The economic growth in UK was between 1and 1.5 percent smaller relative to growth
rate that it would have achieved without Brexit.
Figure 1: Impact of Brexit on GDP growth of UK

3INTERNATIONAL MARKET INSTITUTION AND POLICIES
(Source: ft.com 2019)
After Brexit announcement, the value of pound declined. Because of the growing
economic uncertainties the sterling has recorded steepest fall. This is shown in the figure
below.
1-Jan 1-Feb1-Mar1-Apr1-May1-Jun 1-Jul 1-Aug 1-Sep 1-Oct 1-Nov1-Dec
1
1.05
1.1
1.15
1.2
1.25
1.3
1.35
1.4
1.45
1.5
Exchange rate
GBP/USD
Month
GBP/USD
Figure 2: Effect of Brexit on sterling exchange rate
(Source: investing.com. 2019)
As shown from the above figure, there is continuous downward trend in GBP/USD
exchange rate. The accounted exchange rate between United Kingdom and United State in
June 2016 was 1.33. After Brexit, pound depreciated recording an exchange rate of 1.32.
Since then, exchange rate continued to decline accounted to be 1.23. Depreciated currency
added to domestic inflation by increasing price of imported goods (Sampson 2017). Inflation
and on-going economic uncertainty further lowers growth expectation.
So far as state of labor market is considered, after the Brexit referendum, there is an
increase in overall employment. Not only employment increases but also there is an increase
in full-time employment. This has reduced the concern related to underemployment. Because

4INTERNATIONAL MARKET INSTITUTION AND POLICIES
of the higher inflation rate, wage in real terms have declined after the Brexit vote (Partington
2019). Nominal wage though has increased slightly but increase in price level reduces real
wage rate. After inflation exceeded the targeted level, wages growth is struggling to match
them.
Because of Brexit, business investment has become stagnant. There is hardly any
growth in business investment since the referendum. The level of business investment has
remained disappointing with a negligible growth in plant size, new building and machinery.
The movement of stock market index indicates the view of investors regarding economic
potential of the nation (ft.com 2019). FTSE 100 index measures the stock market
performance of UK in the international market. Though there is general upward rising trend
in FTSE index, the growth rate is significantly lowered compared other developed countries.
1/1/2016
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
6000.00
6200.00
6400.00
6600.00
6800.00
7000.00
7200.00
Stock Price
UK
Date
Stock Price
Figure 3: Trend in FTSE index
(Source: finance.yahoo.com 2019)
Germany

5INTERNATIONAL MARKET INSTITUTION AND POLICIES
Germany is the economic powerhouse of Europe. The economy of Germany is now
experiencing a slow growth rate due to economic slowdown of China, the biggest export
market of China. The economic condition of Germany further worsens due to the possible
exit of UK from EU. Brexit that could result in trade barriers could cause trouble for
Germany that is an export driven country. German exporters are likely to face an export tariff
of $3.8 billion if UK left European Union. There is a possible threat of supply chain
disruption due to interruption in the movement of inputs and other complex manufacturing
product. The possibility of Brexit caused a decline in economic growth by 0.2 percent in the
third quarter of 2016. This was the first decline in economic growth since 2015 (Sukri 2019).
This weakens the outlook for economic growth in the fourth quarter. The official currency
used in Germany is Euro. The exchange rate between Euro and USD helps to understand the
value of domestic currency in Germany. The trend in official exchange rate is given in the
following figure.
1-Jan 1-Feb1-Mar1-Apr1-May1-Jun 1-Jul 1-Aug 1-Sep 1-Oct 1-Nov1-Dec
1
1.02
1.04
1.06
1.08
1.1
1.12
1.14
1.16
Exchange rate
Euro/USD
Month
GBP/USD
Figure 5: Impact of Brexit on Euro/USD exchange rate
(Source: investing.com. 2019)

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As shown from the above figure there is an overall depreciation of Euro following
Brexit. The value of Euro against USD was 1.1105 in June 2016. After the Brexit it started to
decline. Exchange rate depreciated to 1.1158 in August 2016 from 1.1175 in July. In
December 2016, exchange rate between Euro and USD was 1.0516.
Despite the impact of Brexit on economic growth and exchange rate of Germany, the
economy is believed to be resilient enough to fight the impact aftermath of Brexit. Even after
disruption in the supply chain, there is some positive signs for the economy resulting from a
continuously increasing stock prices (Rehman and Della Posta 2018).
1/1/2016
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
9000
9500
10000
10500
11000
11500
12000
Stock Price
Date
Stock Price
Figure 5: Impact of Brexit on stock prices of Germany
(Source: finance.yahoo.com 2019)
From the above figure, it is clearly seen that despite Brexit stick price in Germany still
constitutes a more or less upward rising trend. In case of financial service industry, Brexit
even has a beneficial impact (Buth, Hogenauer and Kaniok 2019).
Spain

7INTERNATIONAL MARKET INSTITUTION AND POLICIES
Spain is highly vulnerable to Brexit as the country shares a good relation with United
Kingdom. Spain is strongly integrated with UK in terms of migrants’ flow and
interconnectedness with the financial sector. The event that would adversely effects economic
growth of Spain is the significant decline in export demand. Following the decline in relative
price of Sterling to Euro, exported goods from Spain to UK seems to be expensive lowering
the export demand. There is an estimated decline of GDP and employment by 0.5 percent.
The international demand for Spanish exported goods declined by 1.15 percent while the
consumption hurt by 0.4 percent (Nellist 2019). This can be understood from the trend in
price of Pound relative to Euro.
1-Jan 1-Feb1-Mar1-Apr1-May1-Jun 1-Jul 1-Aug 1-Sep 1-Oct 1-Nov1-Dec
1
1.05
1.1
1.15
1.2
1.25
1.3
1.35
Exchange rate
GBP/Euro
Month
GBP/Euro
Figure 6: Trend in GBP/Euro exchange rate
(Source: investing.com. 2019)
As shown from the above figure after the announcement of Brexit Euro has
appreciated against Pound. This reduces the export demand for Spanish good.

8INTERNATIONAL MARKET INSTITUTION AND POLICIES
1/1/2016
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
7500
7700
7900
8100
8300
8500
8700
8900
9100
9300
9500
Stock Price
Date
Stock Price
Figure 7: Trend in stock price index of Spain
(Source: finance.yahoo.com 2019)
From the above figure of stock price index, the trend suggests that Brexit does not
have much effect on business performance. There is still an upward rising trend even after
announcement of Brexit. This shows there is some optimism about the impact of Brexit.

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References
Buth, V., Hogenauer, A.L. and Kaniok, P., 2019. The Scrutiny of Brexit in National
Parliaments: Germany, Luxembourg and the Czech Republic Compared. In Brexit and
Democracy (pp. 107-132). Palgrave Macmillan, Cham.
finance.yahoo.com. 2019. DAX Performance Index. Retrieved 26 July 2019, from
https://finance.yahoo.com/quote/%5EGDAXI/history?
period1=1451586600&period2=1483122600&interval=1mo&filter=history&frequency=1mo
ft.com 2019. The UK economy since the Brexit vote — in 6 charts | Financial Times. [online]
Ft.com. Available at: https://www.ft.com/content/cf51e840-7147-11e7-93ff-99f383b09ff9
[Accessed 26 Jul. 2019].
investing.com. 2019. GBP USD Historical Data - Investing.com India. Retrieved 26 July
2019, from https://in.investing.com/currencies/gbp-usd-historical-data
Johnston, C.M. and Buongiorno, J., 2017. Impact of Brexit on the forest products industry of
the United Kingdom and the rest of the world. Forestry: An International Journal of Forest
Research, 90(1), pp.47-57.
Nellist, T. 2019. Hard Brexit WARNING: Spain faces '£9BN hit and 130,000 job losses' in no
deal disaster. [online] Express.co.uk. Available at:
https://www.express.co.uk/news/world/1102897/brexit-latest-spain-brexit-no-deal-brexit-
spain-economy-bank-of-spain-report-brexit-deal [Accessed 26 Jul. 2019].
Partington, R. 2019. How has Brexit vote affected the UK economy? May verdict. [online] the
Guardian. Available at: https://www.theguardian.com/business/2019/may/28/how-has-brexit-
vote-affected-the-uk-economy-may-verdict [Accessed 26 Jul. 2019].

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Rehman, S.S. and Della Posta, P., 2018. The Impact of Brexit on EU27 on Trade,
Investments and Financial Services. Global Economy Journal, 18(1), p.20170097.
Sampson, T., 2017. Brexit: the economics of international disintegration. Journal of
Economic perspectives, 31(4), pp.163-84.
Sukri, A. (2019). The German economy is slowing. Brexit could make it worse. Retrieved 26
July 2019, from https://www.aljazeera.com/news/2019/01/german-economy-slowing-brexit-
worse-190128031440710.html