British Prime Minister Theresa May narrowly survived a no-confidence motion this week while her plan to navigate Brexit was massively rejected by Parliament. The deadline of March 29, 2019 is fast approaching, while European leaders are warning that the prospect of Britain crashing out of the union without a deal has increased. This could lead to huge economic disruption on both sides of the Channel.
“The default remains that we’re leaving the EU on March 29, but the big question is, will Theresa May reach across party divide to seek consensus on Brexit?” says economist James Smith of ING’s Global Markets Research in London.
“There’s no immediate sign that May will back down on her red lines or the Labour Party will shift direction, either, so there’s no clarity, but we’re running out of time and an extension to Article 50 is getting more and more likely.”
The cold hard fact, as things stand, is we're leaving the EU with or without a deal on March 29.
Meanwhile, financial “markets are trying to take the silver lining from things. The pound remains pretty calm. Investors are looking at two things – some kind of cross-party agreement is getting more and more likely as to is an extension of Article 50 period. That’s the two themes in the market currently.”
“It could be several months before we get any clarity, and we can expect a choppy ride before things will get better,” explains Smith. “The cold hard fact, as things stand, is we’re leaving the EU with or without a deal on March 29. So for businesses, they have to prepare for that and we’re likely to hear businesses will likely get more and more vocal about preparations they’re making.”
Zimbabwe’s economic crisis
Fuel prices have more than doubled in Zimbabwe, sparking strikes and violent protests. The government says it was the only way to make people buy less fuel as it struggles to tackle a currency crisis.
Foreign exchange is now hard to find in a country that scrapped its own currency a decade ago. That has led to long lines for fuel, bread and medicine and pushed up prices.
According to Richard Segal from Manulife Asset Management, the hyperinflation of 2008 is still charting the course of Zimbabwe’s present situation.
He says that “over the past 10 years, if we analyse conditions, it’s actually done much better than it has been doing before”. “The current reform stopped hyperinflation and the economy began to grow, although not that much.”
The incoming government last year “had a plan to put into action but it never did this”. “And rather than finance its budget deficit by cutting costs, it decided to raise taxes and it led to a plummeting of confidence, and therefore further economic stagnation.”
“The country won’t take that much to turn things around, but it needs the political will and it doesn’t have that yet. Within the gloom, there’s a lot of evidence of improvement. The economy is growing again, and before the currency reform, it was declining by 5-7 percent per year. There’s a lot of potential in mining and agriculture. In addition, the telecoms company, Liquid Telecom, which is a home-grown company, is one of the most impressive TMT companies across Africa,” explains Segal.
“Although there are shortages of fuel and especially hard currency, we have to recognise this is not necessarily a shortage of hard currency in the economy – just hard currency in circulation. There’s a lot of dollar hoarding. Were confidence to return, then those hard currency stocks would quickly flow back into the economy. So, it really is a question of confidence and trust in the government.”
Also on this episode of Counting the Cost:
China trade: China‘s trade dispute with the United States is taking a toll on its economy. Exports have fallen to their lowest point in two years, while imports are also down, as Katrina Yu reports from Beijing.
Car industry in turmoil: The US-China trade war has cast its shadow over the North American International Auto Show in Detroit. High-powered sports cars and SUVs took centre stage, but carmakers say the industry is in turmoil, as tariffs push up steel and aluminium prices and eat into profits. John Hendren reports from Detroit.
China-Sri Lanka: Construction will soon begin on China’s biggest investment project in Sri Lanka after a Chinese state-owned company completed reclaiming 269 hectares of land from the sea. The Sri Lankan government says the $1.4bn Port City will be a technological marvel, but critics say it’s part of a crippling debt trap. Minelle Fernandez reports from Colombo.
Venezuela economy: Hyperinflation threatens to slice off any gains from President Nicolas Maduro‘s massive minimum wage rise in Venezuela, as Teresa Bo reports from Caracas, where public health services are crumbling.