Investment outlook 2019: BrexitContributor Karen Ward
European corporates are plagued not only by geopolitical uncertainty but also by political challenges at home. At the time of writing, there is still considerable uncertainty about UK prime minister Theresa May’s ability to pass the Brexit deal through UK Parliament. Our baseline assumption is that the threat of either another referendum, or a general election, will eventually bind a majority in the House of Commons together and the deal will pass.
Beyond Brexit, there remain challenges for the European authorities in 2019. Centrist politicians are still struggling to head off populist parties. With critical European Parliament elections coming up in May, the risks are rising that Eurosceptic alliances will take a greater share of the vote. In which case, investors may become sceptical about both the longer-term prospects for integration as well as the ability of Brussels to provide meaningful leadership in the next downturn.
The stand-off between Brussels and Rome also looks set to continue. Italy is likely to be placed under an Excessive Deficit Procedure, but this is not a particularly rare occurrence. France has been in equivalent monitoring for 15 of the last 17 years (see below). We don’t expect Italy to consider leaving the euro, but the eurozone’s third-largest economy is slowing sharply as credit conditions tighten.
Excessive Deficit Procedures are not uncommon
Years spent in excessive deficit procedure (EDP)
Number of years
Key themes for 2019
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