The markets have over-reacted to the British vote, said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University.
During an interview with the AJC today, he compared the aftermath of the vote to the panicked response of the Lehman Bros. collapse in September of 2008.
But in contrast to the paralysis in financial market that followed Lehman’s demise, the Brexit vote changes nothing in the fundamental economy or the way it is financed, he argued.
“It’s basically changing the title of a house. But the house is not going away. The productive capacity of the economy is not going away. When Lehman failed, the firm shut down and the people got laid off.”
In the wake of the vote, stock markets and Japan and Germany fell sharply – far worse than the Dow’s drop in the United States.
“Yes, it will mean a mild recession in Britain, but the markets are reacting as if it’s all over,” Dhawan said.
The pullout vote send the value of British currency plunging.
“This is a great buying opportunity if you wanted to get into the markets or were looking to buy some property in England,” he said.
And while trade is crucial to Georgia, the Brexit vote is a modest event at most, Dhawan said.
Georgia exports to the European Union were valued last year at about $7.7 billion, roughly 20 percent of the state’s overall exports, Dhawan said.
And while that is significant, Britain accounted for less than one-quarter of the EU total, Dhawan said. “So the health of the EU matters to us more than the health of Britain matters.”
If anything, the impact here might even be positive, Dhawan said.
That is because the news will keep the Federal Reserve from raising interest rates, so for that – and because of the market’s jitters – the mortgage rates will likely stay fairly low.
“That will be a boon for consumers who want to refinance or to buy a home. The consumer is going to have cheaper financing.”
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