The Brexit hangover could create headaches for the U.S. economy.
A handful of economists are already downgrading their outlook for U.S. growth this year after Britons voted to leave the European Union. The vote sparked severe volatility in stock markets and a rally in the dollar. For America, that’s a one-two punch.
Experts at Goldman Sachs (GS), Barclays and Bank of America (BAC) lowered their forecast for U.S. economic growth. Other economists told CNNMoney they anticipate reducing their outlook later this week but requested not to be named since the forecasts weren’t public yet.
The reductions are minor for now. However, the huge uncertainties unleashed by the vote, along with the stock market selloff, are the key reasons behind the volume being turned down on U.S. growth.
“We expect only a small net drag on U.S. growth from the Brexit vote, with the caveat that the outlook could change significantly if the equity markets keep falling,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics, a research firm that slightly lowered its outlook too.
The last thing America needs is another headwind. Growth so far this year has been anemic: the U.S. economy only grew 1.1% between January and March on an annual basis, the Commerce Department reported Tuesday. That’s higher than the initial estimate of 0.5%, but still very low.
Beyond weak economic growth, job gains have started to slow this spring and American employers are very tepid about investing in their own businesses. Better growth was already an uphill battle, before Brexit.
American trade with the U.K. makes up less than 1% of U.S. economic activity. Nor is the U.S. directly affected if U.K. economy sinks into recession as a result of leaving the EU.
However, Brexit could hurt the U.S. economy in two key ways: volatile stock markets and a strong dollar.