According to Goldman Sachs’ economists Jan Hatzius and Sven Jari Stehn, the British economy would enter into a mild recession by early 2017 based on the outcome of last week’s decision to exit the European Union.
The ‘Brexit’ referendum, announced on 23 June 2016, would cut the country’s GDP by a total of 2.75% in the next 18 months.
Separately, according to Goldman Sachs, Eurozone’s GDP would average 1.25% vs. 1.5% before the Brexit vote, over the next two years.
For the U.S. economy, the bank expects GDP growth in the second half of 2016 to come in at 2% vs. previous forecast of 2.25%.
Goldman attributed the changes in GDP forecasts primarily to principle risks arising out the Brexit vote:
- Terms of trade would most likely deteriorate as companies would scale back their investments due to the uncertainty created by the outcome
- Financial conditions would tighten due to exchange rate fluctuations and weakness in risk assets like stocks and junk bonds