I hope Britain doesn't leave Europe. I don't think it's a step forward. But as it looks plausible that the Brexit vote could win on Friday, it's worth considering the economic implications.

The political implications are complex and worrying, but the economic implications are not necessarily so grim - at least not in this part of the world.

The big question is: could Brexit-related turmoil be the trigger for a wider global economic meltdown?

It could, but it probably won't.


In New Zealand we're looking at a period of currency and stockmarket disruption. This started last week as markets started to price in the risk.

Hear Sky News Economics Editor Ed Conway discuss Brexit with Early Edition's Rachel Smalley:

It hasn't yet been a particularly dramatic fall for the dollar as it came straight after Reserve Bank and US Federal Reserve rate holds sent it back to post-US70c levels. Our stockmarket has slipped back too, but from record highs earlier this month.

If Britain votes to leave then the kiwi dollar may fall more sharply as the US currency gains on its safe-haven status.

The net effect of this is actually good news for our exporters.

It could even give the Reserve Bank breathing space to keep interest rates on hold in August. It's a fine balance though because the RB will have to weigh that against the bigger risk of Brexit inducing a more dramatic market turmoil that actually slows global growth.

Certainly a Brexit would make the next few weeks pretty hair-raising, but I'm more inclined to the view that it would be a short-lived event that doesn't derail the Chinese or US economies.

As we saw in January's market panic, both the Chinese and US authorities still have appetite for stimulating their economies back to health. The Fed may keep rates on hold longer, China may loosen bank lending restrictions further.

It's hard the to imagine the US or China staying in risk mode for long. Europe's already a basket case in terms of its contribution to global growth.


A split may prolong that but can't really rate as a shock for the rest of the world.

The US economy in particular has been gaining momentum at a glacial pace since the GFC. It may collapse again one day but it's unlikely to be this week.

There is a longer term risk around anything that forces the US and China to stay in stimulatory mode longer than they might have.

Both are in danger of creating their next asset bubble if they maintain these kind of policies too long.

But again, that's not likely to be an issue for this week and it's not something over which the UK's political status is likely to have a major influence.

There may be some trade implications for us but only at the fringes of the equation in terms of New Zealand's export revenue.

Europe and Britain are no longer central to our economic story.

But strap yourself in. It's going to be a lively week for financial markets.

The political outcome of this event is far from certain. The Scottish referendum showed us that sometimes voters swing to more conservative outcomes on these things than polls suggest.

If the UK stays in, markets are likely to bounce in relief and we could see the kiwi dollar spike.

But even if it doesn't, the rest of the world doesn't have to go into full-blown crisis mode. As long as we hold our nerve.

What is being voted on?
UK voters are being asked in a referendum whether they want to continue being part of the European Union.

How soon will be know the result?
Voting begins on Thursday night, New Zealand time. IT's expected that by about 4pm on Friday we should get a clear idea of the result is likely to be.

How are the votes counted?
Vote counting will begin as soon as the polls close at 10am on Friday at 382 local centres around the UK. Each area will declare their result as soon as the votes have been counted. These local results will then be collated at 12 regional centres. The final vote will be announced at Manchester Town Hall.

What is the expected impact on New Zealand?
The currency and stock markets are likely to be volatile as a the Brexit seen as a big financial risk for the global economy. If the leave camp wins the kiwi dollar will fall as traders buy up the US dollar, which is seen as a safe haven. If the leave camp loses then there is likely to be a relief rally for the stock market and NZ dollar.