In the latest forecast for the global economy, the OECS has predicted that almost 3 per cent of Britain’s economic growth in the next three years would be wiped away in the case of a no-deal Brexit in comparison to an erosion of just 0.6 per cent for the rest of Europe.
Paris-based club for the richest economies of the world also warned that if the United Kingdom government failed to secure an agreement with the European Union, it would deal the biggest blow to the UK even as concerns are growing about slower growth next year is to hit all developed countries.
The UK economy would be forced into a recession next year if British businesses are unable to gain unhindered access to EU markets after 31 October, estimated the OECD analysis. Britain’s low rate of growth will be prolonged until at least 2022 because of significant loss of trade, investment and technical knowledge as well as a greater fall in the pound.
It was important to create a smooth exit of the UK from the EU so that businesses and the economy remains protected, said Laurence Boone, the OECD’s chief economist. “The best thing is to avoid a no-deal Brexit and to stay closely aligned to the EU as possible,” she said.
There is risk of further depression in the global economy which is facing the impact of almost two years of heightened uncertainty because of trade wars and tit-for-tat tariff wars as well as Brexit negotiations, which was a cause of concern for Boone.
“The concern is that with high levels of uncertainty going on for so long that we run the risk of low levels of trade and investment becoming entrenched. And that would leave countries even more exposed to a financial shock,” she said.
In the second quarter of the year, global investment dropped to 1 per cent and the annual rate of expansion of world trade dropped to 0.5 per cent from 6 per cent in 2016.
If powerful trading countries, including the US and China, continues with their policy of import tariffs and including more goods in tithe tariff net, the situation is likely to get worse next year, Boone said.
It is anticipated that the rate of GDP growth for UK would drop to 0.9 per cent from 1 per cent this year, which is lower than the 0.2 per cent which was forecast by the OECD in May, the body said.
If there is no Brexit deal, there would be a knock-on effect to employment and investment in 2020 in the UK economy because of a contraction, she said. She however said that it is very difficult to make a complete and accurate estimation of the extent of the shock without incorporating the reaction of the Bank of England and the government.
The OECS said that growth will drop 0.1 percentage points to 1.1 per cent across the 19-member eurozone. The rate of growth of the US economy would be the fastest among the developed economies and it would be able to avoid threats of imminent recession. However the OECS estimated that the GDP growth of the US will also drop to 2 per cent next year from 2.4 per cent for the current year.
(Adapted from TheGuardian.com)
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