Brexit Effects

France's INSEE has published  (parameters specific) projections
on the effects of deal/no deal Brexit for the 27 Members economies.
Ireland is the most affected in either scenario.

https://www.liberation.fr/planete/2019/03/26/brexit-quitte-ou-double-pour-les-economies-europeennes_1717331

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source: Libération March 26, 2019

author: Lucie Lespinasse

translation: doxa-louise

Brexit: double or nothing for European Economies

Insee (l’Institut national de la statistique et des études économiques) published with its latest
forecast a complete file on the consequences of Brexit for the economies of the 27 Member
States.

Uncertainty remains on the outcome of discussions on the modalities for the United Kingdom to leave the European Union. In both cases, from an economic point of view, everybody looses. We have yet to know to what extent.

In its latest forecast. INSEE has published a complete file on the consequences of Brexit for the economies of the 27 Member States. The formula used is based on a consideration of commercial exchanges, but does not take into account changes in the structure of international commerce, changes in the behaviours of individuals or again a possible devaluation of the Pound. The reference level of GDP in this study is that which the country would have reached in the absence of Brexit.

A possible easy transition

If a soft Brexit is decided on, an accord will be reached between the EU and the United Kingdom. A transition period would be put in place going to December 31, 2020 so that commercial arrangements could be negotiated and the hike in customs’ duties would only apply starting January 1, 2021. In the hard Brexit alternative, there would be no transition period put in place and the effects would be felt from the moment of departure of the United Kingdom from the EU.

Customs’ Duties

In the case of an accord, the customs’ tariffs chosen could be those agreed to with Norway (who is a member of the common Market where free trade is the rule), that is near 0%. Without an accord, no bilateral treaty would be possible and the customs’ duties would thus be defined according to the most favoured nation clause. The United Kingdom would have to apply these tariffs in an equal manner to all commercial partners, without privilege to one or the other. In this case, a significant drop in the levels of commercial exchanges is to be expected.

Yet, even in the case of the ‘soft’ version, non-tariff barriers (obstacles or rule-defined constraints, technical or administrative, such as waiting times or health regulations) will go up. The increase would be of 2.8% in the case of an accord and of 8.3% without.

Impact on imports and exports

Some 53% of British imports come from the UE, mostly services (mainly from France)

followed by manufactured goods (essentially from Germany). On the exports side, the UE is also Britain’s main commercial partner holding 38.9% of British exports, for the greatest part services.

Given a hike in customs’ duties, a drop in international exchanges with the UE is to be expected, which would deprive not only the United Kingdom but also its commercial partners, in the short term, of part of their GIP. Ireland and the Czechoslovakia would be the countries most severely affected (respectively -1.4 and -0.7% percent of GDP in the context of a soft Brexit), given that exports to the United Kingdom represent a large proportion of the GDP. Germany and France in turn, would be less hurt, because the importance of exports in their GDP is less.

Yet, Germany would be particularly vulnerable to second round effects. In fact, Berlin produces a great number of intermediate goods, which are transformed in other European countries and then exported to the United Kingdom. For example, 11.3% of Czech exports to the United Kingdom come from intermediate products from Germany which are finalized in theCzech Republic. The exports of such intermediate goods would also be affected by a drop in international trade.

Lower GDP for all Member States

Whatever the final decision and considering international exchanges only, the Member States of the EU will see a drop in their GDP as soon as the first trimester following the withdraw of the United Kingdom. Ireland remains the most affected country in both scenarios: -1.4% in the ‘soft’ version and -4.1% in the case of a withdrawal with no deal. Would follow the Czech Republic, Belgium, the Netherlands, and Germany (-0.5% for soft Brexit and -0.9% for hard(, the fifth most impacted country. France, Spain and Italy would experience a lesser drop of GDP (-0.3% rather than -0.6%).

Worse yet, if one takes into account an estimate of non-tariff barriers, the impact on the GDP of European countries is certainly stronger. The drop for France could be -0.6% with an accord and -1.7% without; for Germany, -1% versus -2.4% and for Ireland -1.6% versus -4.9%.

Difference observed between countries may also be from the nature of the goods exchanged, knowing that services (for which France is a great exporter), will not be subject to customs’ duties and will carry non-tariff barriers that are lower than other exports. The food/agriculture sector, the central one for Ireland, would see customs’ tariffs go up by 20%.

This being said, the British government announced on March 13 it would hold back customs’ duties in the no deal case. Thus, 87% of imports would not be touched by customs’ duties and no border controls would be re-established on the border with Ireland, so not to go back to a hard border. In that case, INSEE estimates on the consequences of a hard Brexit would need to be revised downward.