Brussels, 19/07/2016 (Agence Europe) - The European Commission anticipates lower growth of GDP in the Eurozone, by between 0.1% and 0.2% (1.5% or 1.6% of GDP rather than 1.7%) in 2016 and between 0.2% and 0.4% (1.3% to 1.5% of GDP instead of 1.7%) in 2017, due to the increased downward risks caused by the uncertainty surrounding the prospect of the United Kingdom leaving the European Union (EUROPE 11580).
At the level of the EU of 27 member states, the lesser GDP growth will be between 0.1% and 0.2% (1.7% to 1.2% of GDP instead of 1.9%) this year and between 0.1% and 0.4% (1.4% or 1.7% of GDP rather than 1.8%) next.
Before the referendum, the Commission put growth in the United Kingdom at 1.8% of GDP for 2016 and 1.9% for 2017. It now predicts lesser growth of between 1.3% and 1.6% of GDP, or a differential between 0.2% and 0.5% of GDP this year. The 2017, growth in the United Kingdom is expected to be between -0.3% and 1.1% of GDP. In the worst-case scenario, therefore, the United Kingdom could go into recession next year.
“The economic landscape has not changed much in the weeks since the spring forecast was published on 3 May, but the results of the UK referendum on 23 June have modified the conditions for the way ahead. The 'leave' vote has resulted in financial market volatility, abrupt exchange rate changes and a substantial increase in uncertainty. These developments and the uncertainty resulting from what is expected to be a protracted period of exit negotiations have the potential to damage the recovery in the EU”, the Commission states in its initial assessment of the economic impact of the results of the British referendum, which was published on Tuesday 19 July. The report goes on to read: “while uncertainty is expected to diminish over time, forthcoming changes in the economic and political relationships between the UK and member states could have a longer lasting impact on the medium to long-term economic outlook”.
The Commission has attempted to materialise the lesser growth anticipated in the Eurozone and the EU due to the anticipated impact of the British referendum by looking at two different scenarios. The first is based on an assumption that the negative economic impact produced would be for a limited period of time. A second scenario involves a prolonged and more severe economic shock, increasing financing costs on the market and more cautious consumer behaviour. Both scenarios assume a 15% depreciation of the pound sterling against the euro, which will boost UK exports but reduce disposable income through higher import prices.
The Commission stresses that none of the scenarios anticipates the contractual nature to underlie relations between the United Kingdom and the European Union.
See: http://ec.europa.eu/economy_finance/publications/eeip/pdf/ip032_en.pdf (Original version in French by Mathieu Bion)