S&P introduces its Brexit sensitivity index
Standard & poor’s Global Ratings (S&P) has introduced a Brexit Sensitivity Index (BSI) among the countries seen as be the most vulnerable to the negative impact of a potential UK exit from the EU.
In a survey of 20 countries most exposed to a potential UK exit from the EU compiled by S&P, Ireland, Luxembourg, Malta, and Cyprus are on the frontline of economies susceptible to any trade and migratory aftershocks from a decision by the UK to leave.
BSI measures goods and services exports to the UK compared to these economies’ domestic GDP, bidirectional migrant flows, financial sector claims on UK counterparties (including off balance sheet claims), and foreign direct investment in the UK.
The index does not reflect the potential political and market aftershocks of Brexit. However, it does distill the current real and financial economic links to the UK economy, the world’s fifth largest, while also indicating which sovereigns might be more exposed to an unwinding of the UK’s standout macro feature: its current account deficit of 5.2% of GDP, which is the world’s second largest in absolute terms at an estimated $148bn.
“According to this methodology, Ireland and other small open financial centers lead the list of sovereigns vulnerable to a UK decision to exit the EU. Of the 20 sovereigns most exposed, only two, Canada and Switzerland, are not EU members, and just one, Canada, is not European,” said S&P credit analyst Frank Gill.
“A rapid unwinding of an external imbalance of this scale, alongside currency volatility, would not take place without affecting the UK’s most important trading partners, and its most important creditors,” Gill said.