Goldman sees post-Brexit UK recession, cuts US, EU growth forecasts

Goldman Sachs economists expect the victorious "leave" outcome to chop a cumulative 2.75 per cent off Britain's gross domestic product in the next 18 months.
Goldman Sachs economists expect the victorious "leave" outcome to chop a cumulative 2.75 per cent off Britain's gross domestic product in the next 18 months.PHOTO: BLOOMBERG

NEW YORK (REUTERS) - Britain is likely to enter a recession within the year as a result of last week's vote to leave the European Union, a decision that will stunt global economic growth as well, Goldman Sachs' top economists said on Sunday (June 26).

"We now expect the (British) economy to enter a mild recession by early 2017," Goldman economist Jan Hatzius and Sven Jari Stehn wrote in a note for clients.

They expect the victorious "leave" outcome in the June 23 referendum to chop a cumulative 2.75 per cent off UK gross domestic product in the next 18 months.

They also expect knock-on effects in the US and European economies.

Goldman now expects euro zone GDP over the next two years to average 1.25 per cent versus 1.5 per cent before the Brexit vote.

For the US economy, the bank now expects GDP growth in the second half of 2016 to come in at 2 per cent versus a forecast of 2.25 per cent previously.

Goldman sees three principle risks for as a result of the vote: terms of trade are likely to deteriorate; companies are likely to scale back investment due to the uncertainty created by the outcome; and financial conditions will tighten due to exchange rate fluctuations and weakness in risk assets like stocks and junk bonds.