The flags of the United Kingdom and the European Union merge into each other, in the background a city

© istockphoto.com/melis82

The German Federal Ministry for Economic Affairs and Energy today published an in-depth analysis of the economic impact of the UK’s withdrawal from the EU. In addition to taking stock of the UK’s bilateral business and trade relations with Germany and the EU, the study also simulates the effects of Brexit on the German and European economy as well as on individual industries.

Minister Zypries said: “Brexit will have economic repercussions for the EU Member States and especially for the United Kingdom. The extent of this impact will much depend on future contractual relations between the EU and the UK. The study also points out the economic opportunities and risks. Even in the most unfavourable scenario, the impact of Brexit on the EU economy and the German economy in particular, ought to be manageable. Other arguments that can be cited in support of this view include the current economic situation, both in terms of economic policy and cyclical development. That said, there may well be some sectors that are hit harder by these developments. This is why we must do our utmost to achieve the best possible results in the negotiations with the UK.”

The study was carried out by the Munich-based ifo Institut on behalf of the Federal Ministry for Economic Affairs and Energy. The institute is examining a total of eight different scenarios of what future relations between the EU and the United Kingdom could look like. The simulations that are being carried out on the basis of bilateral sector-based business ties and trade links show that long-term growth will be determined to a high extent by the future relationship between the EU and the United Kingdom.

Under the scenario of a comprehensive and ambitious UK-EU free trade agreement, real gross domestic product in Germany and the EU would fall by 0.1% in the long term while real GDP in the UK would drop by 0.6%. Should we not be able to conclude a bilateral agreement and therefore revert to the WTO most-favoured nation principle, this would cost the UK -1.7% of its GDP in the long run, compared to -0.2% for Germany and -0.3% for the EU.

You can find the study (in German) here.