World Bank President David Malpass said yesterday that clarity over Britain’s exit from the European Union would strengthen the outlook for global growth, aiding both rich nations and the developing world.
“If there were clarity in that outlook it would help the growth environment quite a bit,” Malpass told reporters during the IMF and World Bank fall meetings after the EU and Britain, the world’s fifth-largest economy, announced a tentative deal.
After several days of negotiations, Prime Minister Boris Johnson yesterday said that Britain and the EU had agreed a “great” new Brexit deal, but it must still be approved by the British parliament.
European Commission President Jean-Claude Juncker said he would recommend the EU’s speedy approval of the agreement.
Malpass said Brexit uncertainty had been weighing on trade and the economic outlook for both Britain and the EU.
Resolving the issue would have benefits for those economies and the developing world, he said.
Kristalina Georgieva, the managing director of the International Monetary Fund, called the agreement “good news,” and said she hoped the will to complete the deal “holds in all quarters.”
She told reporters the IMF had estimated that Britain’s gross domestic product would grow by 3.5% to 5% less if it exited the EU without a deal, while such a move would shave 0.5% off the GDP of the EU.
Even with a deal, Britain’s GDP stands to drop by 2%, Georgieva said, although she noted that much of that impact had already been absorbed given the long period since Britain’s vote to leave the bloc in 2016.
The IMF downgraded its forecast for economic growth in Britain this year to 1.2% from the 1.5% it forecast three months ago, which would be the weakest since 2009.
Before the agreement was reached, the IMF this week forecast that Britain’s GDP would grow by 1.2% in 2019 and 1.4% in 2020, after growth of 1.4% in 2018.
Meanwhile, Britain will be on course for more distant economic ties with the European Union, making the country poorer, if Prime Minister Boris Johnson wins parliamentary backing for the Brexit deal he clinched with Brussels yesterday.
Compared with the deal his predecessor Theresa May reached last year — which parliament rejected three times — Johnson’s deal aims for less regulatory alignment with the EU, and greater trade barriers between Britain and its largest trading partner.
“This is more damaging than Theresa May’s Brexit in terms of economic impact,” said Anand Menon, director of The UK in a Changing Europe, a think-tank based at King’s College, London.
Both Britain’s finance ministry and almost all external economists have forecast that increased trade barriers will cause Britain’s economy to grow more slowly than if it were to stay in the EU, and the damage increases as trade barriers rise.
Based on what was known of Johnson’s plans last week, UK in a Changing Europe estimated that they would make Britons more than 6% poorer on a per capita basis than staying in the EU — equivalent to £2,000 ($2,570) per year in the medium term.
May’s deal would have reduced income by just under 5% per head, while a so-called no-deal Brexit — which would leave Britain trading purely on World Trade Organisation terms — would lower incomes by just over 8%. Menon said he did not think these estimates needed to be changed significantly, based on the final deal reached yesterday. He expected Johnson to reject the ‘level playing field’ requirements on regulatory alignment that the EU wants to make a condition of a future close trading relationship.
Financial markets have reacted positively to the deal, as it lowers the risk of a disruptive no-deal Brexit.
But Dean Turner, an economist with UBS Wealth Management, said that although it might give a brief fillip to British growth, there was too much uncertainty about the longer-term trading environment to revive moribund business investment.
“I wouldn’t be getting the flags out just yet,” he said. “I think we will see a little bump in activity, but not anything that will be meaningful enough to get the UK out of a weak growth trend.”
While the bulk of the Johnson deal was seen as largely the same as that agreed between the EU and May, analysts noted that May’s aspirations for a close future trading arrangement had been watered down in the political declaration accompanying it.
Whereas the May version aspired to “as close as possible” a future trading relationship with the EU, that line was replaced by merely “ambitious” in the revised text.
“Theresa May’s deal would have ended up in a softer arrangement than just a free trade agreement,” Alex Stojanovic of the Institute for Government said.
“This government appears to want an FTA and that is very different: that means there would still be regulatory barriers particularly in goods between Great Britain and the EU.”
He added that Britain’s new freedom to sign its own bilateral trade deals around the world was unlikely to offset the lost economic activity.
“If the UK did a deal with everybody... it would benefit in 15 years the UK GDP by 0.2%. Most free trade agreements do not benefit GDP very much.”
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