A post-Brexit trade deal is still at stake. The risk of not reaching an agreement is very high, but ABN Amro economists doubt that such a scenario will last long; An agreement is likely to be concluded in the course of 2021. However, even with a deal, Brexit will inflict significant damage on the economy from United Kingdom. The bank expects the productive capacity of the UK economy to be 5% lower over time than if it had remained a member of the EU.
Key Comments:
“Our base case remains that an agreement will be reached. If not and the UK exits without a deal, a deal is likely to be reached in the course of 2021. However, Regardless of when or if a deal is signed, Brexit will cause immense damage to the UK economy, and to a lesser extent, the remaining members of the EU. Some of that damage will be visible immediately in early 2021, albeit masked by the effects of the pandemic. “
“By 2021, the UK will lag behind the eurozone and the US in recovering to pre-COVID activity levels, despite an earlier release of the vaccine. In the long term, the degree of damage will depend on how far the UK deviates from EU rules, which in turn will determine how severe non-tariff barriers to trade will be. Our base case is that 10 years after the referendum, the UK’s GDP will be around 5% lower than it would have been if it had voted to remain in the EU.“.
“In the long term, the UK GDP would be around 7.5% lower in a no-deal scenario compared to if the UK had remained a member of the EU, compared to 5% lower if the UK reaches a trade deal. “
“Our expectation is that the economy of the The United Kingdom will contract by -10.9% in 2020. This compares with -7.6% in the eurozone and -4.3% in the United States.. The UK therefore has much more lost ground to make up in 2021, and while we expect overall growth to be higher in the UK than in most other countries, the economy will remain around 3.5% below pre-pandemic levels by the end of 2021, compared to a deficit of 2.7% in the eurozone and just 0.2% in the US.“
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