From Trade To Migration: How Brexit May Hit EU Economy

Brexit-EU

Brussel: The European Union’s chief concerns over Britain’s vote to leave the group are political but losing its second-largest economy will have a huge economic impact as well. Below are some of the main economic risks and benefits for the EU’s remaining 27 members.

Other members will have to fill in at least some of the shortfall from a lack of its contributions.

Britain’s total contribution to the EU budget for 2016 has been set at 19.4 billion euros ($21.4 billion), including its rebate and customs duties. It receives about 7 billion euros, mainly agricultural and regional subsidies, leaving a gap to fill of just over 5 % of the total EU budget.

Germany, the EU’s largest member, would inevitably have to provide the most extra cash. Germany’s Ifo institute estimates that would be 2.5 billion euros.

UniCredit says there would be manageable negatives for the euro zone, with a trade impact, a financial flight to safety and uncertainty possibly leading to tighter financial conditions and postponed investment. It would revise down its 2017 forecast for GDP to 0.5-1.0% from the current 1.6%.

TRADE

The rest of the European Union has a trade surplus of around 100 billion euros in goods with Britain, while Britain exports some 20 billion euros more in services than it imports, the same gap as for financial services.

Many economists forecast Brexit would at least temporarily reduce UK growth, uncertainty hitting domestic demand and weakening the pound, with a resultant impact on EU goods exports to Britain, which make up some 2.6% of rest-EU GDP in 2014.

A UK “demand shock”, linked also to a possible reintroduction of import tariffs, of 10% could lead to a reduction of rest-EU GDP by 0.26%.

Brexit campaigners say the EU would want to agree a free trade deal with Britain even if the country left the bloc.

However, Oliver Schulz, an economist at Citi, reasons that could play more into the hands of the EU given there tends to be more focus in trade deals on goods than on services, and financial services in particular.

Switzerland, where financial services are a larger share of GDP than in Britain, has no general access to EU financial service markets and runs a financial services trade deficit with the bloc.

The EU’s main service export to Britain, tourism, is unlikely to be affected.

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