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Weekly Economic Insights - 18 September 2018

Macro Highlights - 9/18/2018

Highlights of the week

Economist insights: In the United States, the mid-term elections are drawing near and inflation is decelerating, in the eurozone the ECB maintains its course

  • In the US, with the forthcoming mid-terms on 6 November, the latest polls indicate a probability of 74.6% that the Democrats would win the majority in the House of Representatives
  • While US data continues to indicate good momentum, core inflation fell back from 2.4% to 2.2% in August, notably due to a drop in apparel and medical care prices
  • In the eurozone, the ECB maintained its monetary policy unchanged and kept a similar tone in its communication as in June 2018, as we expected

Focus Brexit: What is the outlook for the UK?

  • The risk of a disorderly exit of the UK from the European Union has increased: talks have not made any headway since March 2018 and the disaccord over the Irish border does not appear to have a solution
  • Furthermore, none of the European Union's existing trade models are able to meet the demands of the two parties, which maintains a high level of uncertainty surrounding the UK’s outlook
  • According to our analysis, even if a deal is made over the Brexit conditions, the UK’s economic growth would decelerate in 2019
  • A no-deal Brexit, on the other hand, would imply a 15% drop in the pound, a sharp rise in Gilt yields and a drop in residential property prices of 25% to 35% over the next three years
  • However, the impact of a no-deal Brexit on the eurozone would be limited, thanks notably to the relocation of some of the financial services activities that up to now have been domiciled in the UK

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