Two world-changing events in the last two weeks – Britain’s stunning vote to leave the European Union and the opening of the widened Panama Canal – are poised to reshape Florida’s economy, for better and for worse.
That the Panama Canal widening ultimately will benefit our state is virtually beyond dispute. The question is how long it will take to reap the benefits. But the United Kingdom’s “Brexit” vote creates economic uncertainties that could be disastrous for the Sunshine State.
Let’s start with what is certain. UK citizens voted, 52 percent to 48 percent, to sever the nation’s decades-long membership in the EU on June 23. The divorce will not be immediate. To begin the process, the UK must invoke “Article 50” of the Treaty of Lisbon, and outgoing Prime Minister David Cameron has said he will leave that duty to his successor. Formal negotiations will not begin until October at the earliest and could take two years or more to complete.
There will be an immediate impact on Florida, though. The British pound, which two years ago was trading at more than $1.70, took a beating the Friday after the vote. The pound dropped 8 percent against the dollar, closing $1.37 per pound. And there was yet another slide on Tues., July 5, when the pound slipped below $1.31, the first time in 31 years. Moody’s downgraded the UK Government’s bond rating from stable to negative. And in its twice yearly report on financial stability, the Bank of England governor Mark Carney stated, “There is evidence that some risks have begun to crystallise. The current outlook for UK financial stability is challenging.” Tough words for UK investors, grappling with uncertainty in a post-European world.
For Floridians contemplating a London vacation, this is good news. The trip just got cheaper. For the rest, though, it is very bad news because Brits’ vacations to Florida just became far more expensive and much less appealing.
According to VISIT FLORIDA, the UK was the number-two source (behind Canada) of foreign visitors to the state, providing slightly more than 1.7 million tourists in 2015. There’s more: Among the top 10 countries supplying tourists to Florida, the UK was the fastest-growing, providing 5 percent more people than in 2014. Now, their costs for a Disney admission ticket or a South Beach hotel room just jumped 8 percent overnight. By the end of this week, the exchange rate could be even worse.
The effects don’t stop there. Many fear the UK’s vote will embolden nationalist movements in other EU countries, leading to more referendums. France and the Netherlands are often mentioned as possibilities. This creates the specter of a weakened EU. Or worse.
Again currency markets reacted, though not quite as severely. The Euro dropped more than 2 percent Friday, to $1.11. But, the Euro has been weakening against the surging dollar for about two years now and is trading almost 21 percent below its 2014 level.
Europe as a whole is the number-one source of Florida-bound tourists, providing more than 4.1 million in 2015. That was a 1 percent increase from 2014, but the UK and Germany (which also sent more tourists last year) provide more than half of all European visitors. Other European countries sent fewer tourists in 2015 (France experienced a 7 percent decline).
Then there’s trade. According to Enterprise Florida, Sunshine State companies exported $795 million in goods to the UK. Thanks to the already strengthening dollar, that represented a 32-percent decline from 2014. Will Brexit’s destabilization of the pound make things even worse this year?
Florida’s consumers will see a benefit, of course, as imports from the UK become less expensive. Enterprise Florida reports the state imported almost $1.8 billion in British goods last year, up nearly 9 percent from 2014. Economists will continue to debate whether the benefits in consumer purchasing power will offset the hit to Florida’s workers.
Finally, there is British investment in the state. Dr. Jerry Parish, chief economist for the Florida Chamber Foundation, said market uncertainty is likely to hurt.
“The vote by the UK to leave the European Union will also have the immediate effects of increasing volatility in financial markets, and that could lead to reduced foreign direct investment in Florida,” he said in a statement.
As noted, this is just the immediate impact; the future is much murkier. The question is not only whether the EU will continue to be a force in the future, but whether the UK itself will survive. Remember that the UK is comprised of four separate nations: England, Wales, Scotland and Northern Ireland. While voters in England and Wales voted for Brexit, Scotland and Northern Ireland overwhelmingly supported remaining in the EU.
Already, there are calls for a referendum in Scotland on continued UK membership. Voters there voted 55 percent to 45 percent in favor of staying two years ago, but part of the UK’s selling point was its EU membership. Do Scots want to stay in the EU badly enough to tear apart a union that dates symbolically to 1603 when the crowns of England, Ireland and Scotland were united under Scotland’s King James? (The countries’ parliaments made the marriage official in 1707 with the Treaties of Union.)
Most of Ireland split from the UK in 1922. However, the majority of Protestant northern counties there remained part of the UK. Sectarian violence followed in the north until the Good Friday Agreement of 1998 brought peace. It also brought an open border, which presumably no one wants to see re-erected. Nearly 20 years of peace may have convinced northern Protestants they can live as citizens of Ireland, which not coincidentally is part of the EU.
Panama Canal: Unlocking New Global Trade
With appropriate fanfare after nearly a decade, on June 26, a 694-foot Chinese COSCO container ship sailed through the new set of locks in the Panama Canal and with that, the $5.25 billion expansion of the engineering feat originally opened in 1914, is ready to write its next chapter.
It can now accommodate the new class of large ships known as neo-Panamax, holding about three times more containers than what went before.
The timing for the global economy is not without significant challenges. China, while experiencing its own economic downturn must now navigate a weakened global demand for goods from its primary trading partners: the U.S., the EU and Japan. Its May trade data had exports down 4.1 percent year-over-year and a bigger dip from April’s 1.8 percent drop.
While there is no consensus on how much market share may be taken from the U.S. West Coast ports, there is watching and waiting on the part of shipping lines, notoriously risk-averse. Railroads may cut costs to stay competitive. Logistics must be sorted out.
But several facts work in Florida’s favor – it has 15 ports, is the closest state to the Canal and Gov. Scott has pledged $1 billion for the state’s port infrastructure during his term. Florida also has become the third most populous state, with more than 19 million consumers.
PortMiami completed $1 billion in preparing for the larger ships, dredging to 52 feet and building a tunnel that connects the port to the airport and the interstate. And over at Port Tampa Bay, two massive Chinese gantry cranes are eager to play with containers.
With all the mystery and rich history of the Panama Canal, we will have to ultimately “wait and sea.”