The European Union will not be immune to the economic damage caused by a no-deal Brexit, according to a new report by the International Monetary Fund (IMF) released today.
In its latest annual health check of the euro area, the Washington-based IMF warned that the EUs real GDP could fall by as much as 1.5 per cent – roughly $250bn – if the UK crashes out of the union with no trade deal in place. The impact would vary across the 27 member states of the EU: Austria and Finland would be least affected, while Ireland's GDP would suffer a loss of as much as 4 per cent.
This is because of the potential damage from severing the close financial ties between Britain and the rest of the bloc. The UK is one of the largest trading partners with the euro area. Earlier this week, the IMF downgraded its forecast for UK growth this year to the weakest since 2012.
Read more: City warned of growing Brexit wedge between UK and EU firms
The UK is scheduled to leave the EU on March 29 next year. If the EU and the UK government under Prime Minister Theresa May fail to broker an agreement, the trading relationship between the two will likely default to World Trade Organization (WTO) rules.
Under this scenario, economic output across the EU would fall by about 1.5 per cent on average, and around 0.7 per cent of jobs – roughly 1m – would be lost, according to the IMF.
On the other hand, in the event of a Norway-style agreement where the UK joins the European Economic Area, the damage would be minimal.
“Under a relatively benign Norway scenario where access to the single market is preserved while membership in the customs union is lost, the estimated loss of output is negligible,” the IMF report states.
However, the IMF also warns that there will be no winners from Brexit.
“The departure of the UK from the EU will represent a loss not only for the UK but also for the EU-27,” the report says.
“Higher barriers to trade, capital, and labor mobility will have a negative long-term effect on output and jobs throughout the EU-27.”
The stark warning from the IMF comes the same day that the newly-appointed Brexit secretary, Dominic Raab, had his first meeting with the EUs chief negotiator Michel Barnier in Brussels. The meeting followed reports that EU officials are warning member states to prepare for a no-deal scenario.
Read more: EU publishes its no Brexit deal guidelines
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