The UK economy will barely grow in 2019 even if Brexit goes smoothly and in a no-deal scenario it will probably sink into recession, the OECD warned on Wednesday.
The Paris-based international organisation said the possibility of Britain leaving the EU without a withdrawal agreement was a serious risk to global growth, which is already slowing as trade tensions and political uncertainty curb investment.
In its latest economic outlook, the OECD predicted UK growth of just 0.8 per cent year on year in 2019 and 0.9 per cent in 2020. These are a significant downgrade from the 1.4 per cent and 1.3 per cent growth it forecast for those two years as recently as November, and considerably lower than the 1.2 per cent growth pencilled in for 2019 in the Bank of England’s latest forecasts from February.
However, even that weak rate of expansion is premised on a smooth Brexit, with a transition period lasting to the end of 2020. The OECD believes a no-deal Brexit that led to the imposition of tariffs under World Trade Organization rules would reduce UK output by about 2 per cent, relative to a baseline of a smooth exit, over the next two years.
The costs would be greater if delays at borders and a loss of access to other markets hit cross-border supply chains and if there was disruption in financial markets.
“In such a scenario, the likely near-term recession in the UK would entail sizeable negative spillovers on growth in other countries,” the OECD said, describing it as “a major adverse shock for Europe and possibly elsewhere in the world”.
Ireland, the Netherlands and Denmark would be the countries most exposed, given their relatively small size and strong links with Britain: the OECD said their exports to the UK could fall by 15 per cent in the medium term.
Brexit disruption would come at a bad time for the eurozone, with Germany — recently the motor for growth in the single currency area — especially exposed to uncertainty over trade and the risks of a sharper Chinese slowdown.
The OECD has cut its forecasts for almost all the world’s major economies, but some of the biggest downgrades were for Germany, where it expects growth of just 0.7 per cent this year and 1.1 per cent in 2020, and for Italy, where it predicts a recession.
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It expects eurozone gross domestic product to grow just 1 per cent year on year in 2019 and 1.2 per cent in 2020. Laurence Boone, the organisation’s chief economist, said a global slowdown in trade had been especially acute in the eurozone, where export growth had collapsed to zero at the end of 2018.
She said recent talks between the US and China offered little hope of a pick-up, as “tensions between the two countries go way beyond what is being negotiated now”, while the US was also at odds on trade with the EU, and with other emerging markets such as India.
The eurozone’s weakness is a drag on global growth, which the OECD expects to slow from 3.6 per cent in 2018 to 3.3 per cent this year.
