Global Daily – Can a no-deal Brexit still be stopped?

by: Bill Diviney , Aline Schuiling

UK Politics: MPs might struggle to stop a Boris-led disorderly Brexit – Polling suggests Boris Johnson continues to be the most likely candidate to take over from PM Theresa May in the Conservative Party leadership contest (ballots are being sent to party members, with the result announced on 22 July). As the contest between Mr Johnson and rival Jeremy Hunt heats up, a key focus has been his attitude to further Article 50 extensions and the potential for a no-deal Brexit. In an interview yesterday, Mr Johnson ‘categorically’ ruled out a further delay to Brexit, and said that ‘do or die – come what may’ the UK would leave the EU on the currently planned exit date of 31 October. Indeed, we think Mr Johnson would be much more willing to countenance a no-deal Brexit than Mrs May was if he is unable to negotiate changes to the Northern Ireland backstop – as looks likely. And although MPs have shown through a number of votes that they do not support a no-deal Brexit, the legal mechanisms to prevent a Prime Minister intent on pursuing such a course are limited if a deal is not even brought to parliament. As a result, we last month raised the probability we assign to a no-deal Brexit to 25% from 15% previously. In this scenario, the only clear way of stopping a disorderly Brexit would be to bring down the government through a vote of no confidence, triggering an election. However, polling suggests the number of Conservative MPs would halve in such a scenario, bringing the Labour Party to power. Defence minister Tobias Ellwood has said on Monday that ‘a dozen or so’ Conservative MPs would be willing to do so, but a confidence vote could be uncomfortably close. (Bill Diviney)

Euro Macro: French and German consumer confidence diverges – Both France and Germany published consumer confidence data today. Germany published the first estimate of confidence in July, which fell to 9.8, down from 10.1 in June. Meanwhile, France published its report for June, showing that consumer confidence increased to 101, up from 99 in May. Actually, confidence amongst French consumers has risen non-stop in every month since the start of the year, whereas in Germany consumers have become more gloomy almost non-stop during this period. An important reason for this divergence seems to be that the German economy is much more exposed to the decline in global trade and the uncertainties related to the global trade conflict than France’s. The share of exports to countries outside the EU in Germany’s GDP (approximately 16%) is around twice as high as that of France. Indeed, Germany’s exports growth has slowed much more sharply than France’s export growth since the start of 2018. Consequently, overall GDP growth in Germany has also been much weaker than in France, with Germany’s GDP having grown by merely 0.2% in total during the three quarters to 2019Q1 and France’s GDP by 1.0%. On top of that there might have been some positive impact on confidence in France from the extra government spending and tax cuts that were announced by President Macron following the yellow vests protest. The details of France’s consumer confidence report shows that the assessment of the past and future standard of living each increased noticeably in June and each moved to levels above their long-term averages in that month. Meanwhile, Germany has not yet published the details of confidence in July, but the detailed report for June shows that the decline in confidence in that month was entirely due to a drop in the component gauging income expectations. (Aline Schuiling)