Brexit-related EPU in the UK is transmitted to Germany
Brexit-related EPU in the UK is transmitted to Germany and France in particular,
to a lesser extent to Spain and to the least extent to Italy. These transmissions
can impede and adversely affect economic recovery in Europe. Therefore,
economic policy coordination and convergence among the remaining EU states
are important to effectively reduce EPU and thereby minimise financial stability
risks.
Indeed, elevated EPU has real economy implications beyond capital
markets via subdued bank lending to non-financial corporations and
households. Even more, these effects are disproportionally pronounced for
SMEs. Banks could turn out to be a central loop through which EPU is
transmitted to the real economy, especially given the heavy bank dependence
of corporate funding in Europe.
EU Forecast
euf:ba18.d:29/nws-01