Brexit: what it means for Australia
The United Kingdom's decision to leave the European Union has significant implications for Australia's trade and investment relationships with the EU and the UK.
By Remo Moretta, Assistant Secretary, Europe Trade and Brexit Unit
Australia has important trade and investment relationships with both the UK and the EU.
The EU as a bloc is our second largest two-way trading partner in goods and services. The UK on its own was our seventh largest two-way trading partner in 2015. Based on 2015 data, the EU would be our third-largest two-way trading partner, if the UK were excluded.
In raw figures, total exports of goods and services from Australia to the EU were valued at $23 billion in 2015. Of this, more than a third ($8.8 billion) was to the UK. It is important to note that the UK serves as a hub for export distribution for many other EU countries, and vice-versa.
In 2015, total EU investment in Australia was worth more than $990 billion. Of this, over half ($500 billion) was from the UK. In response to Brexit, the International Monetary Fund trimmed growth forecasts for 2017; the global forecast was cut by 0.1 percentage point, to 3.4 per cent, reflecting the impact of uncertainty flowing from Brexit on investment and trade. Fiscal and monetary authorities are responding to support confidence and spending by households and businesses. The Bank of England moved decisively by cutting rates and injecting liquidity, including extending its asset purchase program to Â£435 billion. Early retail and credit data suggest UK consumers and banks have responded positively to these efforts.
The IMF is forecasting a lower economic growth trajectory for the UK and Germany over the next two years, however both economies are still forecast to maintain positive growth. Should uncertainty linger, historic growth in regional trade be reversed or political fallout spread, then negative impacts could be more pronounced.
Negotiations between the UK and EU on the terms of the British departure from the EU, and the shape of Britain's new relationship with the EU, will influence the future scope of these risks. The UK Government has said it wants to be more open to the world, not less, following its departure from the EU.
London's ongoing status as a global financial centre, the continued stability of the global banking system, and future EU political cohesion will be among key determinants of long-term economic risks and opportunities.
The EU has indicated it will continue bilateral and plurilateral agreements with trade partners.
Deepening Australia's trade and investment relationship with the EU remains a priority for the Australian Government. As stated by Prime Minister Malcolm Turnbull when he met his EU counterparts in November last year, Australia and the EU are making progress towards the launch of negotiations for an Australia-EU FTA.
The way forward
The process for the UK's exit from the EU will start when the UK Government formally notifies the EU of its intention to leave under Article 50 of the Treaty of Lisbon. Prime Minister May has said the UK will formally notify the EU of its intention to leave the Union no later than the end of March 2017.
The UK has two years to negotiate the terms of its exit, taking into account the shape of its new relationship with the EU, once it activates Article 50. Any negotiations beyond the two years would require unanimous support from remaining EU member states.
The UK has indicated an interest in negotiating comprehensive free trade agreements with a number of 'high priority' countries, including Australia, once its exit from the EU is complete.
The terms the UK negotiates with the EU, and the parameters of its trade policies, including tariffs and services commitments, as an independent WTO member, will provide the negotiating context for any future bilateral deals. Prime Minister Turnbull has said Australia is interested in taking forward an FTA with the UK as soon as the UK is in a position to do so.
As we approach the new state of affairs in Europe, the Australian
Government is working with the EU and UK to preserve and expand access for Australian exporters and investors in both markets.