World Bank warns of wider no-deal Brexit fallout
A no-deal Brexit will have a negative economic impact from Moldova to Morocco, as the shockwaves sweep eastwards across Europe and through trade links to North Africa, the World Bank has warned.
Unlike previous reports which focused on the UK and the 27 members of the European Union, the Washington-based organisation said nations from Belarus, Ukraine and Moldova in the east, and around the Mediterranean from Turkey and Egypt to Morocco would also suffer should Britain and the EU fail to agree a deal.
Franziska Ohnsorge, the report’s author, said: “Brexit without a deal is a risk to the UK and to Europe and any region that trades heavily with them. It means that countries in eastern Europe like Moldova and as far away as Georgia and those in North Africa will be affected.”
The warning came as the bank forecast a drop in global economic growth in 2019 and 2020, largely in response to slowing growth across the developed world. It said that global average growth would fall to 2.9% this year and 2.8% in 2020, after slipping to 3% in 2018, down from a forecast of 3.1% made in June last year.
While the slowdown remained relatively mild, the bank warned in its latest health check of the global economy that there were “darkening prospects”, not just from a no-deal Brexit, but from a more aggressive trade war between the US and China and growing political tensions.
“At the beginning of 2018 the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead,” said world Bank chief executive Kristalina Georgieva.
“As economic and financial headwinds intensify for emerging and developing countries, the world’s progress in reducing extreme poverty could be jeopardised. To keep the momentum, countries need to invest in people, foster inclusive growth, and build resilient societies.”
In its last forecast, the bank urged the US president, Donald Trump, and China’s leader Xi Jinping to resolve their trade disputes or risk an economic crash equivalent to the 2008 financial crisis.
The bank said that due to lingering uncertainties about the trade war and volatile commodity markets, with oil prices plummeting since last summer, this year would be the first since 2008 when large parts of the developing world failed to generate the income needed to reduce poverty rates.
What is a hard Brexit?
A hard Brexit would take Britain out of the EU’s single market and customs union and ends its obligations to respect the four freedoms, make big EU budget payments and accept the jurisdiction of the ECJ: what Brexiters mean by “taking back control” of Britain’s borders, laws and money. It would mean a return of trade tariffs, depending on what (if any) FTA was agreed. See our full Brexit phrasebook.
In 2018 large parts of sub-Saharan Africa suffered a rise in poverty, jeopardising the bank’s plan to eliminate extreme poverty by 2030.
There were hopes at the bank, which was handed a $13bn (£10.2bn) boost to its lending facility last year, that the situation would improve again in 2019. But every developing world region except east and south Asia would see poverty levels stagnate at best this year, the bank said.
Georgieva said the fall in global growth could largely be blamed on slowdowns in the US, Europe and Japan. Growth among advanced economies is forecast to drop to 2% this year as higher interest rates and trade worries weigh on business and consumer confidence.
Emerging market and developing economies, which need to expand at a faster rate just to keep pace with high rates of population growth, would see growth slow to 4.2%.
Britain, which has been forecast to grow at 1.3% this year and 1.4% in 2020 following a successful Brexit deal, would see its meagre GDP expansion evaporate should it leave the European Union without a transition deal.
The World Bank has come into focus this week following the resignation of its president, Jim Yong Kim, who quit to join a private investment firm with more than three years of his second term left to run.
Kim has become increasingly frustrated with traditional forms of aid and the failure of the bank’s efforts to dramatically cut poverty rates, especially in Africa.
At the bank’s annual conference in Bali last year he said he wanted to focus on improving the education of young people in the developing world as the most effective way to boost jobs and incomes, moving away from large-scale infrastructure projects and disaster relief efforts.
Georgieva, who has become interim president, and Ohnsorge declined to comment on Kim’s departure, which sources inside the bank described as a sudden and “personal decision”.
The bank’s forecasts show that China’s economy will slow over the next four years, dampening the prospects for a strong recovery from the current global slowdown. From a rate of expansion of 6.9% in 2017, China’s GDP growth would fall to 6.2% this year and next, before dropping to 6% in 2021.
According to its own analysis, a 1 percentage point drop in China’s growth rate would bring down growth in the developed world by 0.3% and trigger a 0.6% drop in emerging market economies.
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