A collapse in trade. British goods locked out of their biggest export market. Car factories shut down after swingeing new tariffs are imposed. City bankers retraining as waiters and plumbers, having been frozen out of the European capital markets.
According to the more hysterical predictions, if we decide we’ve had enough of Brussels and vote to leave the EU, our economy will be turned into a post-apocalyptic wasteland, in which the only investments you might want to make would be in shovels, shotguns, and possibly old Mad Max DVDs.
The truth, as usual, is more nuanced. For all the heated debate it generates, the EU does not make a great deal of difference to the British economy. The single market is of much less benefit than is usually claimed. World Trade Organisation rules make it very hard to impose significant tariffs anyway. Brexit would free us of some tiresome regulations, but might re-impose them at a national level soon afterwards.
We would save some money, but not a game-changing sum set against the vast juggernaut of government spending. The City might panic for a few days, but very quickly the economy would trundle along much as before — while whoever succeeded a humiliated David Cameron as prime minister negotiated the finer points of the divorce. That does not mean, however, that some sectors will not be better off, and that some companies won’t be able to make a bit more money. So if you think we’re coming out, where might you want to invest? The simple answer is in industries that will escape heavy regulation, in service sectors that will flourish, and in countries that will be able to increase their trade with us.
First, look at small exporters. It’s a myth that the EU is good for companies selling abroad, or that we need it for access to continental markets. If membership is so helpful, why have we run up one of the biggest trade deficits in the world while inside the club? In fact, once we’re outside we could negotiate trade agreements tailored to our needs. India, for example, has a 150 per cent tariff on Scotch whisky, which could almost certainly be negotiated away. Look for small, export-oriented companies that are making stuff for the American or Asian markets. They should all benefit from a more outward-looking trade policy.
Next, take an interest in companies that are directly hurt by the more idiotic policies imposed by Brussels. Energy is one example. Across the EU, power costs almost twice as much as it does in the US. That may not matter to a design office which runs on laptops, low-energy light bulbs and a Nespresso machine. But to an energy-intensive manufacturer in a sector such as glass, chemicals or alloys, it makes a vast difference. You might think we don’t make that kind of stuff any more, but energy-intensive manufacturing still accounts for 2 per cent of UK GDP. It should be a winner — not least because it will gain a huge competitive advantage over its rivals across Europe, who will still be hobbled by expensive power.
Thirdly, look at service industries in which the UK is a world leader. The EU has never really tried to complete a single market in services, so UK service businesses won’t lose much if they have less access to European markets. But they will certainly benefit from having fewer regulations to contend with. Take wealth management, which draws on our traditional strengths in financial services and law. It could do really well outside the EU if the UK allows London and Edinburgh to be a lot more like Singapore and Geneva — relatively freewheeling centres for looking after the rich.
More broadly, professional services firms might benefit from an Australian-style immigration system that lets them hire highly skilled people from around the world. At the same time, you may want to clear out of your portfolio the companies that depend on low-waged EU migrants: coffee-shop and hotel chains, and probably house-builders as well.
Finally, take a look at countries that will benefit from a free-trading Britain. We still buy butter and lamb from New Zealand, but we would import a lot more if we were free from the madness of the Common Agricultural Policy. Simply buying New Zealand dollars might be a worthwhile punt.
Chilean and South African wine-makers will no longer have to pay EU tariffs imposed on the non-European wines for which we are already thirsty customers. Giant American agri-businesses will have a big new market for their cheap grain, and Argentinean beef will be in greater demand, assuming we haven’t gone to war over the Falklands again. Then again, you’ll want to dump the shares of companies in EU countries that export a lot to us. The Irish economy will suffer, and so might luxury German car manufacturers — not because we’ll impose tariffs, but because they will face more competition.
For all the dire warnings we must expect during the coming referendum campaign, Brexit will neither make nor break the British economy. We will still be a reasonably successful, mature economy, with strengths in areas like finance and media but a massive trade deficit, dismal productivity and stagnant wage growth. That said, over the medium-to-long term, outside the EU we are likely to be slightly more prosperous, and to have a smaller trade deficit as well. Yes, there will be short-term chaos and selling of sterling. But there will also be plenty of opportunities if you think laterally and ignore the hysteria.