Date: 26 October 2020
Author: Olga Cotaga
The costs to trade between Britain and the European Union (EU) will continue to be high even if both parties manage to strike a deal before the year ends, due to the impact of non-tariff barriers, analysts from Deutsche Bank estimate.
“Tariffs make up only a small part of the direct trade cost from leaving the EU,” the analysts wrote in a note.
“Of more significance is the prevalence of non-tariff barriers. These will weigh on trade regardless of whether the UK and EU trade on preferential terms or not,” they said.
Deutsche Bank envisages that Britain will agree on a Canadian-style trade with the bloc in the following weeks, also referred as a Free Trade Agreement.
A deal of such capacity would knock 0.6% off Britain’s gross domestic product (GDP) with a cost of 0.2% to the EU’s GDP, the analysts said.
Facing the hardest hit in Europe from the Brexit costs will be Malta, Luxembourg and Ireland, while the “big four euro area economies will all face below-average costs”, they said.
However, “while in any other year, the trade shock from Brexit would likely result in a yearly contraction, we expect both the UK and EU economies to grow next year, deal or no deal,” the analysts said.
That’s because the trade costs “are small compared to the rebound expected from the economic recovery associated with coming out of lockdown”, they said.
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