The biggest risk from Britain's planned exit from the European Union would come from other countries following suit, a new report says.
The Turnbull government asked Treasury and financial regulators on June 27 for a report on the implications of the UK's vote to leave the EU.
The 15-page report released by Treasurer Scott Morrison on Friday concluded there would be negative short and medium-term impacts focused on the UK economy, but Australia is well-placed to manage any shocks.
Over the longer term, the size of the impact would depend on the degree to which the UK reduced its links to the EU and was able to engage with others.
"Beyond the UK, the main negative short-run economic effects are expected in Europe, reflecting trade and financial links and associated uncertainty," the report said.
"Global economic activity is widely expected to be only modestly affected by Brexit, given the UK's relatively small share (just over two per cent) of global GDP."
But it said there was an added downside risk to the global economy if the Brexit were to trigger other exits from the EU, which would particularly hit euro area countries.
"Australia has proved resilient during past periods of financial market volatility and remains well placed to manage the economic and financial market response to Brexit," the report said.
"The effect on economic activity in Australia, and the financial sector, is expected to be small."
The Australian banking system's links to the UK have declined in recent years, with banks reducing their UK exposures and UK banks retreating from Australia following the global financial crisis.
However in the event of problems in the euro area "funding and operating conditions for Australian banks could deteriorate".
"That said, banks have significantly improved their resilience post-crisis, with stronger capital and funding positions."
"In case of a significant tightening of funding conditions, Australian dollar liquidity remains available through Reserve Bank facilities."
Mr Morrison said the Australian economy and financial sector remained strong.
"It is important as a government that we continue to stay the course on our path of fiscal reform and fiscal improvement and ensuring we continue to bolster the strength of our financial system," he said.
Share
