international trade

Gearing Up for the Implications of Brexit

How to Use Artificial Intelligence to Stay on Top of Your Bottom Line

by Carol Ozemhoya

Ms. Ozemhoya is Contributing Editor at Vector.

April 5, 2017 — While many may be concerned about what’s going to happen to the economy under the new President, events outside the country may actually be what tips the scale toward a recession, or not.

This comes with the advent of the United Kingdom’s vote to leave the European Union last year. The process about to occur, nicknamed “Brexit,” could very well have a negative impact on the U.S. economy, as stated by Janet Yellin, chair of the board of governors of the U.S. Federal Reserve System.

According to CNN, although commerce between the U.S. and the U.K. only accounts for a mere .5 percent of our economy, the effect could be far reaching as a result of a chain reaction from other countries in the EU.

In fact, political factions in France are already talking about pulling the country from the EU as well.

Article 50

Now that Article 50 (Brexit) has been officially invoked (March 29), it will almost certainly have an affect on consumer confidence in the U.K., the Eurozone and perhaps even in the U.S.

For businesses, especially those the deal in markets worldwide, it becomes crucial to obtain a more realistic view of global consumer confidence with a tool such as the one offered by artificial intelligence platform Vector. The state of the art app can model consumer and producer opinions across multiple social media channels.

According to Indexer Co-Founder Anton Gordon, “The negotiation of new trading relationships, establishing new tariffs and other unknowns would likely lead to higher prices for U.K. consumers. This would most certainly be the case if the so-called, ‘Hard-Brexit discount’ is not fully reflected in the pound as the policies associated with Brexit take effect. Moreover Article 50 could be the beginning of a global inflationary trend in which hydrocarbon prices and other globally traded assets exhibit significant price resurgence due to this inflation trend.”

The result would be a series of events, reports CNN, that could impact the U.S in four ways:

  • Apprehension that the EU may be breaking down altogether could negatively impact U.S. consumer confidence in the economy
  • A fear of spending by Americans drawn from their apprehension of Brexit could cause world markets to become volatile
  • The situation could trigger a strong dollar, which actually hinders U.S. trade
  • Brexit could force the Federal Reserve to reconsider rate hikes this year.

Right after the vote by the UK, the U.S stock market took a hit, but it seemed to be a temporary hit, with economic forecasters holding on to their projections for the U.S. economy for 2017, reports the International Business Times.

So it appears the jury is still out, with some financial pundits saying the impact will be minimal, while others go so far as to say Brexit could be the straw that breaks the camel’s back when it comes to the U.S. economy staying healthy.

What We Do Know

On March 3o, the New York Times posted a photo of Great Britain Prime Minister Theresa at signing the letter laying out her country’s withdrawal from the EU.

And as NYT writer Peter S. Goodman put it, “The world did not end.”

“There were predictions about what would happen to the economy if the United Kingdom voted to leave,” Ms. May told Parliament on March 29. “Those predictions have not proved to be correct. We see a strong economy,” reports the Times.

However, Goodman points out, nothing has actually happened yet.

Yet, the UK has possibly jeopardized its trading situation with much of Europe and perhaps also putting into peril its status as banker to the world.

Here’s what will happen: the UK and its trade partners will renegotiate their trade agreements with a two-year deadline to get it done. That time line is crucial because, according to Goodman, “If no deal is struck before then, Britain and Europe would plunge into a state of chaotic uncertainty.

“Trade would revert to the rules of the World Trade Organization, making Britain’s exports to Europe vulnerable to tariffs and other barriers to commerce, including health and safety rules.

“London’s bankers would be effectively severed from Europe, with many transactions for clients based on the Continent rendered illegal.” Not a pretty picture, especially considering that the U.S. economy will have no real control over what is happening with its many trade partners across the waters.

Not a pretty picture, especially considering that the U.S. economy will have no real control over what is happening with its many trade partners across the waters.

And no doubt, the U.S. has its own policies to deal with considering the uncertainty with a new President who has yet to solidify relationships with major trade partners such as China and Mexico.

Already, several financial institutions have announced moves that will shift jobs. Bankers Citigroup, JP Morgan Chase and HSBC, and Goldman Sachs, are carrying out plans to take hundreds of jobs out of London and move to Paris and Frankfurt in anticipation of those financial centers becoming more active with the UK’s exit from the European Union.

And the impact on employment doesn’t end with financial firms, as telecommunications giant Vodafone has also indicated a shift in its work force from London.

How Will Brexit Hit the U.S.

Dire predictions aside, only time will tell the true impact of Brexit on the U.S. economy.

As the process officially began on March 29, U.S. investors and the financial market began to digest new economic data, and it may be too soon to tell. Sam Meredith of CNBC wrote that the “European Central Bank is wary of making a fresh policy message shift next month,” as it is “concerned about a possible yield surge.”

Said Naeem Aslam, chief strategist at Think Markets: “What the ECB wants to do is prepare the market for the fact that tapering may not happen that soon as it is expected. They are right to do so because we do not know what the aftermath of Brexit will be.”

Using AI to Keep Tabs on Your Bottom Line

It could be literally years before the pitfalls of Brexit, if there are any, float across the Atlantic Ocean to the U.S. of A. According to numerous sources, the U.S. economy has barely seen a ripple affect from Great Britain’s departure from the EU.

While some financial analysts were predicting negative impacts, Great Britain itself was prepping for the impact, meeting with automakers such as Nissan to assure them there would be a place for them in the UK, as well as a work force to staff their facilities. In the U.S., the Federal Reserve scaled back its plans to raise interest rates in fear that the U.S. economy would bear some sort of fallout.

So far, to quote a famous book, “All’s quiet on the Western front.”

But that could change, literally overnight. Fortune 500 companies, our own government and financial analysts must stay vigilant in watching for signs of an oncoming recession, such as job loss, a downward trend in consumer confidence and a decrease in new home sales.

That’s where today’s new systems of artificial intelligence can come on to assist in gauging what’s going on in the minds of consumers, as well as decision-makers. For example, Vector has a program that deals with social media and the news called “sentiment analysis” that uses key words to interpret what’s happening, as it’s happening. A firm or entity can tune in to trends very early and alter or schedule marketing plans to meet the ever-changing needs of the public.

The impact can be far reaching, not only affecting the bottom line, but also enabling a company to grasp a sense of what costs and pricing the U.S., and world markets, will bear.

It could be a key to surviving Brexit and its implications on both an individual company and the U.S. economy.