Brexit got a special box all of its own in the latest OECD Economic Outlook. The report identified it as a major geopolitical risk, not just to the UK but to the entire world economy. The shock to the UK and EU economies would, says the OECD, cause a spillover effect across the world.
OECD economists say that Ireland, the Netherlands, Luxembourg, Switzerland and Norway (the Europe High group on this chart) are also highly exposed to the UK economy and would be severely hit by the slowdown in the UK. The shock would be nearly as bad in other European countries, all of which the OECD reckons would be 1% of GDP worse than where they would otherwise have been by 2018. (See Box 1.1 on page 31 of the Economic Outlook.)
Given the OECD’s already dismal forecasts for the developed economies, anything that might lower the rate of GDP growth even further is a serious concern. The world economy is heading for the doldrums again. It is already slowing down of its own accord. The last thing it needs is another sheet anchor in the form of Britain leaving the EU.
For whatever reasons, the world has not bounced back from the downturn in the way it did after previous recessions. We don’t know the cause of the disease but the UK’s symptoms are particularly severe. Two years ago, at the time of the Scottish independence referendum, I wrote a couple of posts on why breaking up the UK would be a really silly idea for everyone given the fragile state of the economy. Since then, the outlook has got worse. This really isn’t the time for launching into the unknown based on a flight of fancy.
Almost everyone who has done any serious analysis of the likely impact of Brexit has concluded that the results will be bad. Their estimates range from merely unpleasant to utterly dire. No-one on the Leave side has come up with anything credible to show the opposite. Their usual response is to say that economic forecasts are never right. This is true, of course, in that they are never spot on but that doesn’t mean they are not broadly right.
As the FT’s Giles Wilkes quipped:
I can’t forecast what my weight will be next year. I can accept analysis that eating s pound of butter a day will make me much fatter.
— Giles Wilkes (@Gilesyb) April 18, 2016
The projections may end up being some way off but it is extremely unlikely that the UK can extricate itself from arrangements that have been the basis of a sizeable chunk of its trade for the last few decades without some damage to its economy.
And for what? Some blather about red tape, which, given that the UK is one of the least regulated countries in the world, has precious little impact on the UK economy. Then there is the vague promise to ‘control our borders’ which is a way of encouraging people to think you mean significantly reducing immigration while knowing full well that nothing of the sort will happen.
Were there a danger of something really bad coming from our membership of the EU, it might just be worth taking the risk but there isn’t. Any of the nasty things which might happen in Europe, like a collapse of the Euro, would stuff the UK economy regardless of whether we were members of the EU. In fact, it would stuff the entire world economy for similar reasons to the Brexit spillover effect outlined by the OECD.
With the world economy heading for a period of stagnation, leaving the EU would be an act of pure self-indulgence, based on some vague and incoherent identity politics. If, in doing so, we only damaged our own country, the rest of the world might be less concerned. But with the world economy being ever more connected, leaving the EU is like lighting a fire in a terraced house. It is bound to affect our neighbours too. If, in our fit of pique with the EU, we mess up the rest of the world’s economy too, it might take them a while to forgive us.