Many, not to say most decisions made by households, companies, governments or central bankers are to some degree influenced by uncertainty. Extensive data gathering and rigorous analysis of historical relationships between economic variables can be helpful to reduce this uncertainty, but the reality is that it won't disappear. This applies very much to the environment we are in following the outcome of the British referendum on EU-membership. Uncertainty has increased and is bound to remain high for a long time. There are several reasons for this. Firstly, because of the many questions concerning the negotiations between the UK and the EU: start date, likely length and outcome. Secondly, we already see the economic consequences of the 'leave' campaign's victory. In the UK economy confidence has dropped. As expected, financial markets have reacted strongly and swiftly, leading to considerable declines in some equity markets and in government bond yields, following a jump in risk aversion. High market volatility is a manifestation of uncertainty. Finally, although the comments of and expected actions by central banks are to be welcomed, it will take time before they influence spending and investment decisions. Fortunately, growth in the Eurozone was sufficiently strong so that the direct and indirect effects should only cause a slowdown bringing back growth to its trend rate. Uncertainty has gone up, but growth should continue.
BNP Paribas Group Chief Economist William De Vijlder discusses the latest market drivers.
On Eco TV July, William De Vijlder discusses uncertainty: