Deal or no deal, Brexit will have 'material' impact on trade
Brexit will cost Britain billions in lost trade with the EU regardless of whether a deal is reached, according to new analysis.
Economists at Deutsche Bank said in a paper published on Friday that the end of the Brexit transition period would have a “material” impact on trade.
“For both UK and EU importers and exporters the increased cost of trade will be material — deal or no deal,” Deutsche Bank said in the paper sent to clients.
Watch: What is a no deal Brexit?
The higher costs is expected to depress trade between the EU and UK regardless of whether a trade deal is reached. Deutsche Bank said the impact will be tougher on Britain.
A no-deal Brexit would cost Britain an estimated 1.1% of GDP in lost trade, Deutsche Bank said — equivalent to around £25bn ($33bn).
READ MORE: UK to resume Brexit trade talks with EU
Even if a “skinny,” Canada-style trade deal is agreed, Deutsche Bank predicts trade worth 0.6% of UK GDP will be lost — worth roughly £13bn to the economy.
The prediction is based on the conclusion that the vast majority of extras costs post-Brexit will be down to paperwork, not tariffs.
“85-95% of the main trade costs are as a result of non-tariff barriers, which remain substantial regardless of whether the UK and EU agree to a skinny free trade deal or not,” the paper said.
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Trade is two-sided and the decline will also hit the EU, although it will have less of an impact. Deutsche Bank forecast that a free trade agreement would see European output fall by 0.2% of GDP, while a no-deal Brexit would knock off 0.4% of GDP.
The impact of Brexit will be masked by the COVID-19 pandemic, Deutsche Bank said. The economies of both Britain and the EU are expected to rebound next year, meaning GDP is likely to grow even if trade is lost under the surface.
“The impact of COVID-19 largely dwarfs the impact of Brexit,” the paper said. “While in any other year, the trade shock from Brexit would raise the risk of a 'sharp' recession, given the current context of the COVID-19 pandemic, both the UK and Europe are likely to grow next year, and grow materially.
“Under an FTA [free trade agreement] style Brexit — our base case — we expect UK GDP to jump to 4.7%. For the euro area, we expect GDP to rise by 5.4%.”
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The UK and EU have resumed Brexit trade negotiations in London in recent days, after the breakdown of talks last week. Both sides have just weeks to reach a deal to allow time for any agreement to be ratified before the end of the transition period on 1 January.
Deutsche Bank said it expects an agreement to be reached.
“The distance between both sides on key sticking points, namely state-aid, fisheries, and governance, is narrowing,” the report said.
Watch: Chief EU Negotiator Bariner leaves London after talks
