Britain is likely to enter a recession within the year as a result of last week’s vote to leave the European Union, a decision that will stunt global economic growth as well, Goldman Sachs’ top economists said on Sunday.
“We now expect the (British) economy to enter a mild recession by early 2017,” Goldman economist Jan Hatzius and Sven Jari Stehn wrote in a note for clients.
They expect the victorious “leave” outcome in the June 23 referendum to chop a cumulative 2.75% off UK gross domestic product in the next 18 months.
They also expect knock-on effects in the U.S. and European economies.
Goldman (GS) now expects eurozone GDP over the next two years to average 1.25% versus 1.5% before the Brexit vote.
For the U.S. economy, the bank now expects GDP growth in the second half of 2016 to come in at 2% versus a forecast of 2.25% previously.
Goldman sees three principle risks for as a result of the vote: terms of trade are likely to deteriorate; companies are likely to scale back investment due to the uncertainty created by the outcome; and financial conditions will tighten due to exchange rate fluctuations and weakness in risk assets like stocks and junk bonds.