Elliott Parker, head of the University of Nevada, Reno Economics Department, says the state will see few direct effects from the British decision to pull out of the European Union.
But he said there’s a “reasonable chance of recession in the United Kingdom because a lot of investors will sit tight until it works out.
“We’re kind of in uncharted territory in terms of how it’s going to effect international trade, geopolitics and those things are hard to speculate on.”
Parker said while the EU started as a free trade agreement like what the U.S. has with Canada and Mexico, it has developed into a lot more.
He said the British have always been uncomfortable with the EU and, when it began with the Treaty of Paris in the 1950s, didn’t want to join and the French didn’t want to let the British join.
“The idea of the EU kept advancing a little farther than the British were comfortable with,” he said.
It expanded to include the free movement of goods, services, people and money. In addition, the EU moved from just western Europe into the eastern European and southern countries such as Greece. And now there’s the added problem of the Syrian refugees flooding into Europe.
He said leaving the organization will impact the British because more than half their exports go to Europe.
Parker said how much impact will depend on what comes next.
“This is a referendum,” he said. “It doesn’t actually do anything.”
He said the next step is to send the referendum to Parliament, which would declare an intent to withdraw from the EU. That sets off a two-year negotiation process to determine what happens when the British leave, especially what happens to the free trade agreements with the EU and British access to those countries.
He predicted the United Kingdom would suffer a loss of 2 percent growth from reduced trade.
“That’s the equivalent of losing a year’s growth,” he said.
The bigger uncertainty, though, is the impact of lost confidence by investors, which could result in a recession for the UK.
“All economies are faith based,” he said, meaning that people have to be able to trust the economy. Parker said that could also have some impact on Nevada by reducing willingness by businesses here to invest in the UK until things shake out.
“There’s a lot of uncertainty in the UK,” he said.