Upstate business leaders predict uncertainty and opportunity after last week’s Brexit vote
The stunning decision by British voters to leave the European Union is reverberating around the world, affecting globalization and businesses big and small, and experts say the uncertainty of what’s ahead is creeping into the Upstate.
Wall Street and financial markets were recovering this week after the shock of the surprise vote.
In addition, BMW and General Electric, two companies with a large presence in the Upstate, are still determining how to navigate the impact of the vote.
“Although GE supported the U.K. remaining in the EU, we respect the decision of the British people and remain firmly committed to the U.K. and Europe,” Jeff Immelt, GE’s chairman and CEO, said in a statement.
GE has 22,000 employees in the U.K. and 100,000 employees in Europe who will continue to focus “on delivering great outcomes for our customers,” Immelt said.
“We believe in the potential to build a competitive Europe and U.K. through digital transformation and manufacturing.”
GE said its Greenville Service Center is the largest gas turbine manufacturing facility in the world.
BMW plans renegotiations in Europe
BMW sells cars in the U.K. and, in a statement, the Munich-based company said, “BMW Group respects the British electorate’s decision to leave the EU. While it is clear there will now be a period of uncertainty, there will be no immediate change to our operations in the U.K.”
“Today, we know that many of the relevant conditions for supplying the European market will have to be renegotiated,” the statement continued. “We will not speculate about the outcome of these negotiations nor about any possible effects that might have on our production operations in the U.K.”
Sky Foster, a spokesperson for BMW Manufacturing Co. in Greer, declined further comment.
BMW Manufacturing Co. is the sole global producer of the X3, X5, X5 M and X6 M sports activity vehicles and the X4 and X6 sports activity coupes.
The vehicles are exported to more than 140 countries.
Unknown impact for S.C. exports
Sujit CanagaRetna, senior fiscal analyst at The Council of State Governments in Atlanta, called the U.K. vote “completely unexpected” after following British press reports and voter polls.
Now, the impact, while largely unknown, will filter down to South Carolina’s economy, he said.
“Everything is sort of still up in the air,” CanagaRetna said. “The signs make me a little nervous.”
Last year, U.S. exports to the U.K. totaled $56.3 billion, and South Carolina ranked fifth among states with $2.8 billion, CanagaRetna said.
South Carolina is eighth among states exporting to the 28 EU countries, he said.
Globally, “we’ve become so much more interconnected,” CanagaRetna said. “It’s this intricate web that has been woven, connecting the smallest little towns in South Carolina, for instance, to places far afield that people wouldn’t even imagine exports going. That obviously has its good and bad, because when incidents like this happen, you’re much more likely to face negative repercussions.”
South Carolina’s exports include automobiles, chemicals, machinery, paper and computer and electronic products, CanagaRetna said.
He expects a softening in those export markets in the short- to medium-term as consumer demand declines.
If domestic U.S. demand picks up, it could offset the slowdown in exports, CanagaRetna said.
“No reason to panic”
Bob Nachman, managing partner and founder of Nachman, Norwood & Parrott, a Greenville wealth management firm, agreed that the Brexit vote is generating widespread uncertainty.
“I don’t see how anybody could know for certain how this plays out, because it is unprecedented,” he said.
The U.K.’s vote punished financial markets and pushed stocks lower, with the Dow Jones Industrial Average falling 610 points, or 3.4 percent, last Friday after the vote. The losses continued this week.
For context, Nachman remembers Black Monday on Oct. 19, 1987, when the Dow fell 508 points, losing nearly 23 percent of its value.
He said U.S. investors could find enticing values on Wall Street in the wake of the latest hard fall.
“If you have a properly diversified portfolio, there’s no reason to panic,” Nachman said. “There could be investment opportunities that present themselves because of this. That’s not just stocks. That could be bonds or other type investments.”
Jay Bryson, a Wells Fargo global economist in Charlotte, said in a special commentary last week that in theory, Brexit should have few direct effects on the global economy because the U.K. economy accounts for only 4 percent of global GDP.
“However, there are also the indirect effects to consider,” he said. “The tightening in financial markets that has occurred today, if maintained, could exert a slowing effect on economic activity in many economies.”
An eventual unraveling of the European Union, although not likely in the near term, “cannot be completely discounted in a medium- to long-term framework,” Bryson said.
CanagaRetna said uncertainty and volatility resulting from the U.K. vote come at a time when the world economy already is fragile.
“Our economy is sort of limping along, but globally there are some real problems out there, whether it’s Europe in general even before this,” he said. “China is definitely in a sort of shaky situation, and then obviously you’ve got what’s going on in places like Brazil and other places that could potentially be drivers of global economic growth.”
Following the British vote to leave the EU, the key will be an orderly exit, CanagaRetna said.
The U.K. enjoys free movement of goods and services with the other 27 member counties of the EU, according to Wells Fargo economists.
The U.K. will need to renegotiate terms under which trade with the EU-27 will be conducted going forward, the economists said in an analysis.
“The direct effects of Brexit on the rest of the world should be manageable,” the economists said.
S.C. exports in 2015
China – $4.4 billion
Germany – $3.9 billion
Canada – $3.7 billion
U.K. – $2.8 billion
Mexico – $2.4 billion
Source: U.S. Department of Commerce, International Trade Administration