How will the Brexit affect the Australian Economy?

June 27, 2016


While the British may have had a lot of time to mull over the consequences of a British exit—or Brexit—from the European Union, the rest of world—including Australia—may also be affected.

Recent polls show that economic uncertainty in the Eurozone can have a negative effect on stock markets all over the world. However, a dip in the Australian Stock Exchange is only the beginning.

Money will start moving outside risky investments like stocks, hence pulling the share market down. This is not good news for those depending on superannuation funds. With inflation already low in Australia, deflationary pressure from Britain would likely put even more pressure on the RBA to further lower the already record-low interest rates.

This might be great news for mortgage holders, but not for investors or anyone saving for a deposit. Lower interest rates discourage investment—something that Australia needs to shift its economy away from the ailing mining sector. Other risky investments, like commodities and oil, will also see a decline because of the Brexit.

While Britain is not Australia’s largest trading partner, their connection is a significant one that will likely affect local companies, both big and small. Reducing or avoiding trade with British businesses for a temporary period can ensure limited exposure to any negative economic activity. Similarly, currency hedging can give businesses some certainty over the future and allow them to make informed business decisions.

But in spite of the negative consequences of the Brexit, there will always be opportunities open for small and medium-sized enterprises in Australia.

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