Wells Fargo economist Jay Bryson and Domtar Corp. CEO John Williams discuss the economic outlook for the EU post-Brexit and what impact that might have on the U.S. in this latest addition to our multi-part video series discussing the U.K.’s decision to leave the EU and the potential challenges and opportunities Brexit poses for businesses on either side of the Atlantic.

Mark: And Jay, what is the EU outlook?  We talked about the UK outlook for GDP and growth prospects but how’s the EU looking, post-Brexit?

Jay Bryson: So, what we did after Brexit, we marked down our Euro-zone forecast a smidgeon.  We still have them growing this year but not as fast as before, because they will take an export hit about, as Jeremy said, in the aggregate about seven percent of the EU, 27.  The people outside the UK, their exports go, about seven percent of those exports go to the UK, and as the UK economy weakens, that will take a hit on an exports from the Eurozone, perhaps the investment climate weakens a little but, you know, in generally, we’re looking at the Eurozone growing, you know, maybe one to one and a half percent this year.  Maybe a little bit stronger next year but still, relatively, you know, muted sort of outlook.

Mark: And, what happens in Brexit and the EU, is it coming here to the United States?  Are we having a slowdown here or is it the country?

Jay Bryson: So, if you look at U.S. exports to the UK, it’s only about four percent.  Of our exports and then as a percent of GD, and only 10 percent of our exports or only 10 percent of GDP is exports.  So, you’re looking at less than a half of a percent of GDP.  It’s just not big enough to cause a recession here in the United States or even a marked sort of slowdown.  I mean, we have slow growth here in the United States but it’s not because of, you know, because of negative exports to the UK.

Mark: And, John, as you’re running the company, you’re looking at this.  Where’s the opportunity.  Now.

John Williams: Well, I think uncertainty’s always helpful in some ways because it does create some opportunities if you’re bold.  I think it’s about being bold.  So, if you’re thinking, can you develop certain markets maybe in an asset light fashion, for example, you don’t actually have to put manufacturing down, maybe you can sell to them, maybe you can export to them, maybe you can do different things.  Of European businesses actually going pretty quickly.  And falling it off, I think the old, I guess Middle Europe as you would call it, is still a pretty large opportunity for a number of businesses.  A lot of us are underdeveloped there. I think within the UK, you just have to think about can you remain competitive and can you get the, as I said earlier, I should hate to repeat myself, but can you actually generate the margin.

John Williams: And how long, how long are you going to have to wait.  Now, if you believe the Pound in three to four years is going to come bouncing back ‘cause, you know, there’s a nice Goldilocks environment here where the UK has negotiated effectively on the trade agreements.  The French have decided not just to take revenge but have actually been reasonable in terms of the way they’re going to negotiate with us.  You say to yourself, there’s no point in putting assets in the UK, I’ll try and move my price a little bit, I’ll suck up the margin for a while and then it’s going to come back as the Pound/Euro relationship changes.  So, I think again, you’re sort of in watching, watching mode currently.

John Williams: I think if you’re in the services business, that’s quite different, I mean, I think and then you, that’s typically an asset like Mobile?  I think manufacturers on the whole are going to be concerned about where they place assets which I think is why you’re seeing some companies go, oh, I’m not too certain right now.

John Williams: But I think the services industries can, you know, easily carry on as before.  Because they’re owning their income where their costs are.  Whereas, to some extent, one of the things for manufacturing are very often earning the income.  Not where the assets are placed and that’s your currency risk.

View Part 1 - Brexit: Overview and Reactions

View Part 2 -  Brexit: Currency Issues and Inflation

View Part 4 - Brexit: U.S. Opportunity in the U.K.

View Part 5 - Brexit: The Impact on Mergers and Acquisitions

View Part 6- Brexit: What the U.K.’s Exit Might Look Like

View Part 7 - Brexit’s Potential Impact on Corporate Passporting and the Banking Industry

View Part 8 - Brexit’s Potential Impact on Corporate Passporting and the Banking Industry