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Brexit and Its Consequences for Austria

Published: July 1, 2016; 18:00 · (FriedlNews)

Like any other economy within the euro area, Austria will also be confronted with challenges following the Brexit vote, according to the latest analysis by RBI Research analysts. However, the economic momentum should not experience any noticeable weakening, even though one should expect considerable declines in exports to the United Kingdom.

Brexit and Its Consequences for Austria / Picture: © www.crossed-flag-pins.com

23 June 2016 has started a turn of the eras in the European Union. On this day, British bookmakers and financial markets were both equally surprised. The decision of Britons came down heavily and triggered considerable price movements with currencies, on the equity markets and risk premia on bonds. The Brexit is an unprecedented event and its consequences are therefore difficult to determine. As a result, a cautious mind set has received priority and riskier asset classes experienced a massive selloff.

UK’s importance to Austria’s export sector (number 8 in the ranking of most important markets for exported goods; share of exports: 3.2%) is lower than for most other euro countries, even though exports to the United Kingdom (2015: 6.0% yoy) recently increased stronger than overall exports (2015: 2.7% yoy). While exports to the UK will therefore admittedly experience a setback, the resulting effect on the Austrian economy should be limited. Aside from the direct consequences, lower investment growth would also be possible due to the longer ongoing, and strengthening, phase of political uncertainty. The phase of uncertainty should indeed take quite some time, however an escalation and similar referenda in other EU member states is however currently not our base scenario. All in all, the Brexit vote results in no need to adjust our growth assumptions for the current year (+1.4% yoy), while we expect only a minor effect on GDP growth in 2017 (1.3% yoy instead of 1.4% yoy). Moreover, the before the Brexit referendum valid scenario was already based on comparably cautious economic expectations.

Consequences for the ATX

The direct influence of a Brexit is only significant for a few Austrian companies due to their exposure (for example, Wienerberger or Zumtobel). Indirect effects could however also come into play in the medium- to long-term through a lower EU budget and CEE currencies tending towards their weaker side. Furthermore, the outlook of continuously low interest rates does not play into the hands of financial stocks. All in all, we expected profits to decline, on an aggregated level, by up to 10% year-over-year.

The commotion surrounding the referendum in Great Britain will most likely not calm down too quickly. We currently consider the ECB’s actions to be a supportive factor. From a fundamental side of things, we continue to see no sufficient momentum, which could trigger positive effects on the development of stock prices.

In contrast, valuations however remain to be moderate. We therefore assign a “hold” to the ATX for the third quarter with a price target of 2050 points.