British EU exit could hit UK GDP hard long-term, German study finds

This article was originally published by Reuters, Apr 27, 2015

If Britain leaves the European Union it could knock up to 14 percent off its gross domestic product by 2030, taking into account all negative factors including lost economic dynamism, a study by two leading German institutes found. 

Based on 2014 values, Britain’s GDP could be 313 billion euros (£224 billion) lower – or 4,850 euros per capita – by 2030 in a worst-case scenario, the study released on Monday by the Bertelsmann Foundation and Ifo economic research institute said.

Under more favourable circumstances – such as Britain forging free trade agreements with the EU from outside the bloc – real per capita GDP could end up between 0.6 percent and 3 percent lower, or between 220 to 1,025 euros per capita.

“The bottom line is that everyone involved would lose economically and politically from the UK leaving the EU,” the study by the two respected German institutes concluded.

The findings portray a more dramatic ‘Brexit’ scenario than that forecast last month by the Open Europe think tank. It predicted Britain’s GDP falling by 2.2 percent by 2030 if it were to leave the EU.

The bottom line is that everyone involved would lose economically and politically from the UK leaving the EU.

“If trade economic as well as dynamic economic consequences, such as the weakening of both innovative power as well as London as a financial centre, are taken into account together, the GDP losses in the unfavourable scenario could reach 14 percent,” the German study said.

The prospect of Brexit – Britain breaking away from Brussels – has moved up the political agenda in tandem with a surge in support for anti-EU party UK Independence Party (UKIP).

The ruling Conservative Party, which has long contained a wing sceptical about the EU, has promised an in-or-out referendum before the end of 2017 if it wins national elections on May 7, in a move designed to neutralise UKIP’s appeal.

The German institutes said that the extent of the economic losses for Britain would depend on whether the country is able to reach free trade agreements with Europe once outside the EU.

It said the major losses would be in financial services, chemicals, mechanical engineering and automobile industries.

The institutes found that the losses for Germany and the rest of the EU would be far less. Germany’s GDP could lose between 0.3 percent and 2 percent per year by 2030, it said, while Ireland, Luxembourg, Belgium, Sweden, Malta and Cyprus stood to suffer more from a “Brexit”.

(Reporting by Erik Kirschbaum and Rene Wagner; Editing by Stephen Brown and Toby Chopra)