The United Kingdom voted last week to leave the European Union (EU), a decision with economic impact throughout the world. CUNA’s economists have issued the following statement in response to the vote, which is referred to as Brexit:
“Our outlook for credit union financial operations is essentially unchanged compared to our view prior to the Brexit vote. Credit union members are likely to be a bit more cautious initially and some credit unions will likely see above-normal flows into savings accounts.
“However, our view still calls for double-digit growth in credit union loans in 2016, healthy earnings and improving asset quality.
“In the short term, we will see pronounced volatility in U.S. financial markets, and a stronger dollar vis-à-vis the British pound and the Euro, making US goods and services more expensive in those areas. Therefore, the exit of the U.K. from the EU will have a moderately negative effect on the U.S. economy.
“The U.K. is the 7th largest trading partner of the U.S, accounting for less than 3% of our total trade. However, the rest of the EU represents almost 15% of US trade, and the EU economy is likely to be retarded by uncertainty over the next several quarters.
“As uncertainty in the EU area rises, demand for risk-free financial assets will keep longer-term US interest rates near their unusually low levels from some time.
“This morning the 10-year U.S. Treasury yield declined to 1.5%. We can expect an increase in financial inflows into the U.S. as a result of uncertainties in the Euro area.
“The strong initial market reactions will likely be reversed as investors get a better handle of the implications of Brexit, and plans on U.K.’s disassociation with the E.U. becomes concrete, which will take about two years."