With the summer lull now well behind us, global policymakers are refocusing on the key issues that are on at hand.
Chief among these is Brexit. The topic was discussed at the recent G20 meeting in China and is also the basis of this week’s informal EU leaders’ meeting in Slovenia, to which the UK is not invited.
Markets have taken a more sanguine view of Brexit recently on the back of UK economic data tending to surprise to the upside of expectations, showing only a limited impact from the June referendum vote in favour of leaving the EU.
UK stock markets have rebounded strongly from their post-referendum vote falls, while sterling has recovered some ground in the past month.
Last month’s rate cut in the UK has also helped sentiment.
However, the Brexit process is only getting started.
Indeed, until the UK triggers Article 50, the official negotiation process cannot get underway. Current indications are that this will not happen until early in 2017.
On this basis, it is likely to be 2019, at the earliest, before the UK exits the EU.
There seems to be a lack of understanding in the UK that some very difficult decisions lie ahead on Brexit.
Indeed, some recent commentary would point to a belief that the key event for the economy was the referendum vote, rather than Brexit itself when the UK actually leaves the EU.
This is despite the fact that the UK’s trading relationships have not been impacted by the referendum vote and the institutional arrangements with the EU remain in place for now.
The UK’s departure from the EU, though, will be a different ball game entirely.
There appears to be a widespread expectation, in the UK, that because it is a large economy and an important export market for many other EU countries it will be able to secure a favourable trade deal on exiting the EU which will see it retain access to the single market.
However, the indications from the EU are that talks on a new trade deal can only begin after the UK leaves the EU, meaning any exit deal may only contain an interim trade arrangement, which could very well be a diluted version of the single market.
Key EU policymakers have also stressed that access to the single market requires freedom of movement of people.
The UK will have to make a trade-off, at some stage, between its desire to maintain access to the single market while regaining control over migration policy.
It is also important to bear in mind that EU leaders will not want to create a precedent of an easy Brexit that other countries might be tempted to follow.
Nationalism is on the rise in many European countries, which could undermine the whole basis of the EU.
Meantime, based on recent comments from members of the UK cabinet, there seems to be some disagreement on the strategy for the exit talks and what type of Brexit the government wants.
It is unclear if the UK wants to remain in a customs union, the extent of inward migration that it feels is appropriate and what shape any new trading relationship with the EU should take.
What is clear is that Brexit is likely to prove a long and difficult process with considerable downside risks for the UK economy.
Some 45% of UK exports go to the EU, while the UK is heavily reliant on imports of intermediate goods from the EU for use by industry.
The single market has been a key factor in fostering strong growth in these trading relationships.
The UK is also the biggest recipient of foreign direct investment in the EU, with much of it coming from mainland Europe.
London is the centre of the financial services industry in Europe.
Meanwhile, large inward migration has played an important role in the strong performance of the UK economy in recent years.
We won’t see the full impact Brexit has on all these factors until the UK leaves the EU.
In our view, the current complacency about Brexit — including in financial markets — is likely to prove misplaced.
Oliver Mangan is chief economist with AIB
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