4 things to watch as Brexit shakes global economy

Following Britain’s decision to leave the EU, markets are reeling. The vote was close, with nearly 73% voter turnout and 51.9% supporting the decision to leave.

Read: Brexit has awakened dangerous forces in the world economy

And now, the U.K., EU and global economies are in for a rocky ride.

In the aftermath, the pound hit a 30-year low and its currently lingering around US$1.37 and CA$1.79, which compares to a high of almost CA$1.93 only yesterday.

British Prime Minister David Cameron announced his resignation shortly after the vote, saying, “The country requires fresh leadership […] In my view, we should aim to have a new prime minister in place by the start of the Conservative Party conference in October. […] This new prime minister takes the decision about when to trigger Article 50 [to] start the process of leaving the EU,” which could take up to two years.

Read: Britain is out. Turn off the lights.

The list of Cameron’s possible successors includes Boris Johnson, a U.K. Member of Parliament and a proponent of Brexit, and George Osborne, even though he backed the remain vote.

Around the globe, volatility spiked: in Europe, main stock indices fell by around 10% on the vote results. Domestically, the Toronto Stock Exchange dumped more than 300 points at open, reports CBC, while the Dow Jones fared even worse due to its average falling more than 500 points, reports Reuters.

To pad portfolios, Reuters adds, “Investors [who are] worried about the outlook for the world economy [have] sought refuge in the dollar and other safe-harbour assets, such as gold and U.S. Treasury bonds, while dumping riskier shares. The yield on the U.S. 10-year bond hit its lowest since 2012.”

Read: What to expect when you’re Brexpecting

So far, it’s unclear what the medium- and long-term effects of Brexit will be. But here are four things to consider.

Keep perspective and monitor medium-term trends.

Even though markets are reacting strongly, remember that Britain accounts “for just 3.9% of the world’s output,” reports The Economist.

But, says The Economist, it’s worth noting that “America’s economy has been sluggish of late and there are grave worries about China. […] Britain’s economy looms large in Europe, where it is a reliable consumer in an otherwise high-saving continent. Any disruption to European growth is particularly unwelcome now.”

What’s the outlook for interest rates globally?

Central banks will now move to damage control mode, says a CIBC Capital Markets release. “The Bank of England might cut rates as early as this Sunday and expansion of its quantitative easing program is a possibility.”

The big picture, it adds, is “earlier plans to tighten fiscal policy are obviously off the table [and] we might also see coordinated actions with other central banks to smooth currency movement.”

Further, “The ECB might cut again in July and the Bank of Japan might introduce another easing package. The Fed will probably shelve any plans to hike in September.” CME Group’s 30-Day Fed Fund futures prices show zero probability of a hike until December 2016.

In a statement to the press, reports Forbes, “[Bank of England Governor] Mark Carney reminded investors that banks in Great Britain had built hundreds of billions of pounds in liquid assets and equity capital in the years since the crisis. This fresh capital and these bolstered balance sheets will help Britain’s banking industry withstand the Brexit market panic.”

The Bank of England is ready “to provide more than £250 billion of additional funds through its normal facilities,” as well as “substantial liquidity in foreign currency, if required.”

For more from Carney, click here to watch him speak and see his full statement.

Read: Brexit a boon for value investors? Not so fast

And, are more referendums on the way?

Scotland’s First Minister Nicola Sturgeon says the country isn’t looking to leave the EU, reports Maclean’s. But in response to Brexit, she says, “Scotland does now face that prospect [of a second independence referendum]—[this] is a significant and material change in circumstances—and […] the option of a second referendum must be on the table. […] When the Article 50 process is triggered in three months’ time, the U.K. will be on a two-year path to the EU exit door.”

There have also been mentions of Swexits, Czexits and Frexits, reports dailymail.co.uk, which notes, “Even if the union holds, the political earthquake that has erupted in Britain will have far-reaching aftershocks.”

Finally, will Britain keep its global status?

Economic and regulatory changes could “affect London’s status as Europe’s financial services hub,” says the CIBC Captial Markets release. “But there are many advantages that London has over its competitors, including the use of English.”

The most obvious benefit of Brexit is “the elimination of the payments to Brussels,” CIBC adds. “The other will be the ability to tailor various EU regulations to match U.K. needs.”

But leaving the EU will have some short-term economic costs, ranging from “financial market jitters to real capital flows, as the EU is the source of some £500 billion pounds of direct investment in the British economy. Doubts about the post-Brexit environment could slow or reverse inflows while negotiations drag on for months or even years.”

In fact, “a study by Open Europe found an exit without a replacement trade pact would trim U.K. GDP by 2% by 2030. But more likely outcomes involving replacement trade deals with the EU and/or other partners will leave the U.K. economy little affected by an exit, or even a small net winner under the best case scenario. [This suggests] Brexit isn’t a make-or-break issue for the U.K. over the long-term.”