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The Ides of March continue....Brexit delayed; final outcome remains unclear On 21 March the EU agreed to delay Brexit until 12 April t...

Brexit Update (Special Survey March 28th 2019)



The Ides of March continue....Brexit delayed; final outcome remains unclear On 21 March the EU agreed to delay Brexit until 12 April to give the UK parliament more time to coalesce around a way forward. While this move shifts the date of a possible no-deal Brexit back by two weeks, it does nothing to reduce political uncertainty, which will continue to hinder business investment and the economy until clarity emerges regarding the final outcome of the Brexit process. A further vote on the prime minister’s deal is possible in the coming days. If the deal is approved, Brexit will be further delayed until 22 May to allow the passage of necessary legislation. If the deal is rejected, the UK will have until 12 April to decide how to proceed. According to James Smith, an economist at ING: “Those Brexiteers that calculate a long delay is inevitable may… still decide to back it [Theresa May’s deal], while those more moderate MPs that fear ‘no deal’ may also decide to get behind it – although we suspect there will be nowhere near the numbers needed for May to get her deal passed.” Assuming the deal is rejected—or Theresa May declines to present her deal to parliament altogether—all options remain on the table. Parliament could agree on a softer Brexit stance—in favor of a permanent customs union or continued membership of the Single Market for instance—and subsequently request a further Brexit delay in order to make the corresponding changes to the political declaration with the EU.




The UK could also request a further Brexit delay to hold a second referendum or a general election, or could even decide to unilaterally revoke its decision to leave the EU. This last option, however, appears improbable. On 25 March, MPs voted to take charge of the parliamentary timetable, shifting control of the Brexit process away from the prime minister. This move sets up a series of “indicative votes” on Wednesday 27 March to assess which Brexit options could command a majority in parliament, although Theresa May has not yet promised to abide by the outcome of the votes. MPs’ decision to take control could even boost the chance of Theresa May’s deal being approved, by encouraging pro-Brexit Conservatives to back it for fear of an even softer Brexit, or no Brexit at all. It is still perfectly possible that parliament fails to agree a course of action by 12 April. If this is the case, the government could ask for a further delay regardless, although the EU may be reluctant to agree. As Kallum Pickering, an economist at Berenberg, says: “the EU would most likely not grant a longer delay for the UK to just continue voting on May’s deal again.” If the EU refuses a request for a second extension, or the UK decides not to ask for one, the UK would leave the EU with no deal on 12 April, likely severely denting economic activity in the near-term.

\The economy remains stuck in low gear in the three months to January According to monthly GDP data released by the Office for National Statistics (ONS), economic activity rose 0.5% in January over the prior month in seasonally-adjusted terms, contrasting December’s 0.4% fall. Despite the strong January showing, the quarter-on-quarter expansion for the November- January period was a mere 0.2%, matching the reading for October-December, and comes amid sluggish momentum in the rest of the EU and elevated Brexit uncertainty. Looking at a sector-by-sector picture, the November-January reading was underpinned by a solid showing from the service sector, which was partially offset by contractions in the industry and construction sectors. FocusEconomics panelists expect GDP growth of 1.3% in 2019, down



The political standoff between President Nicolás Maduro and Juan Guaidó, who declared himself interim president on 23 January and ...

Venezuela Stand Off Far from Over



The political standoff between President Nicolás Maduro and Juan Guaidó, who declared himself interim president on 23 January and has been recognized as such by more than 50 countries, is far from over. Following the unsuccessful attempt by Guaidó and his allies to deliver aid into the country on 23 February, the opposition leader embarked on a support-seeking tour across the region before returning to Venezuela without incident on 4 March, despite breaking a court-imposed travel ban, to continue pressing on President Maduro to step down. Meanwhile, the diplomatic and economic pressure continues to mount as the U.S. announced new sanctions targeting high-profile figures in the Venezuelan government and military. This follows the painful sanctions imposed on the all-important oil industry in late-January, which have led government officials to scramble in seeking alternative markets to sell crude and securing access to its gold reserves as well as much-needed foreign currency. The latest power outages, which have been running for nearly a week, complicate matters further as they are set to impact oil operations and disrupt day-to-day economic activity.

The outlook is grim. On the one hand, the political situation remains in limbo, with the Maduro government likely opting to wait out the crisis while Guaidó strives to keep up the momentum. On the other hand, financial sanctions aimed at choking off the government’s access to external financing and its oil revenues inflict more damage to an already crippled economy besieged by run-away inflation and goods shortages. The possibility of political change has increased amid the latest events, a scenario which some of our panelists have factored into their forecasts. FocusEconomics panelists see the economy contracting 12.4% in 2019, which is down 2.1 percentage points from last month’s forecast. In 2020, the panel sees GDP falling 2.5%.



Panelists estimate inflation to have ended 2018 at nearly 1,300,000%. Last year’s monetary reconversion has been unable to tame hyperinflation while sanctions are set to worsen goods scarcities going forward, further fueling inflationary pressures. Our panel sees inflation surging to over 70,000,000% by the end of 2019, before falling to around 1,500,000% by the end of 2020. Despite the sharp devaluation of the currency in late-January which brought the official rate roughly up to par to the black market’s, the differential between the two has started to widen yet again. The official DICOM exchange rate came in at 3,300 VES per USD in the 8 March auction, while the parallel market rate fell to 3,603 VES per USD that same day. Our panelists expect the official rate to end 2019 at 243 million VES per USD, before rising to 1.1 billion VES per USD by the end of 2020.