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| Brexit could spread shockwaves through global economy, says OECD | Brexit could spread shockwaves through global economy, says OECD |
| (35 minutes later) | |
| Britain’s departure from the European Union poses as big a threat to the global economy as a “hard landing” in China, the Organisation for Economic Cooperation and Development has said. | Britain’s departure from the European Union poses as big a threat to the global economy as a “hard landing” in China, the Organisation for Economic Cooperation and Development has said. |
| The Paris-based thinktank said Brexit would have significant costs not just for the UK and Europe, but for the rest of the world. Catherine Mann, the chief economist at the OECD, said the uncertainty caused by the referendum came at a time when the global economy was caught in a low-growth trap. | The Paris-based thinktank said Brexit would have significant costs not just for the UK and Europe, but for the rest of the world. Catherine Mann, the chief economist at the OECD, said the uncertainty caused by the referendum came at a time when the global economy was caught in a low-growth trap. |
| “Spillovers could be significant to other countries,” Mann said, as she predicted that the world economy would grow by 3% in 2016 and by 3.3% in 2017 – forecasts that have remained unchanged since its last health check three months ago. | “Spillovers could be significant to other countries,” Mann said, as she predicted that the world economy would grow by 3% in 2016 and by 3.3% in 2017 – forecasts that have remained unchanged since its last health check three months ago. |
| Related: EU referendum morning briefing: Vote Leave boards buses to talk immigration | |
| “We have done a lot of work on what a hard landing in China would mean. It is in the same ball park as Brexit.” | “We have done a lot of work on what a hard landing in China would mean. It is in the same ball park as Brexit.” |
| Analysis by the OECD found that the UK economy would be just under 1.5 percentage points smaller in 2018 after Brexit than it would be if the country voted to stay in the EU on 23 June. | Analysis by the OECD found that the UK economy would be just under 1.5 percentage points smaller in 2018 after Brexit than it would be if the country voted to stay in the EU on 23 June. |
| But other countries would also face considerable knock-on consequences. The Irish economy – due to its close trade and financial links – would be about 1.25 points smaller, the eurozone economy 1 percentage point smaller and growth for the OECD – a group of 34 rich countries – would be reduced by just over half a point. | But other countries would also face considerable knock-on consequences. The Irish economy – due to its close trade and financial links – would be about 1.25 points smaller, the eurozone economy 1 percentage point smaller and growth for the OECD – a group of 34 rich countries – would be reduced by just over half a point. |
| Apart from Ireland, the Netherlands and Luxembourg would be the two countries most affected by Brexit, the OECD said. Norway and Switzerland would also be heavily exposed. | Apart from Ireland, the Netherlands and Luxembourg would be the two countries most affected by Brexit, the OECD said. Norway and Switzerland would also be heavily exposed. |
| “The forthcoming UK referendum on EU membership has already raised uncertainty, and an exit would depress growth in Europe and elsewhere substantially.” | “The forthcoming UK referendum on EU membership has already raised uncertainty, and an exit would depress growth in Europe and elsewhere substantially.” |
| Angel Gurria, the OECD’s secretary general said the global economy continued to “limp along” and had failed to break out of its low-growth pattern of the past five years. He said there was a cycle in which “diminished expectations become self-fulfilling”. | Angel Gurria, the OECD’s secretary general said the global economy continued to “limp along” and had failed to break out of its low-growth pattern of the past five years. He said there was a cycle in which “diminished expectations become self-fulfilling”. |
| Gurria added that the theme of the OECD’s annual ministerial meeting was to enhance productivity in order to boost inclusive growth. “High and rising levels of inequality may be contributing to the producitivity slowdown”, he said. | Gurria added that the theme of the OECD’s annual ministerial meeting was to enhance productivity in order to boost inclusive growth. “High and rising levels of inequality may be contributing to the producitivity slowdown”, he said. |
| Assuming that the UK votes to remain in the EU, the OECD expects growth to ease from 2.3% in 2015 to 1.7% this year, before recovering to 2% in 2017. The OECD has now cut its 2016 growth forecast for the UK economy twice in the past six months, having reduced its estimate from 2.4% in November 2015 to 2.1% in February. It is now more pessimistic than the IMF or the Office for Budget Responsibility, the independent body that produces forecasts for the Treasury. | Assuming that the UK votes to remain in the EU, the OECD expects growth to ease from 2.3% in 2015 to 1.7% this year, before recovering to 2% in 2017. The OECD has now cut its 2016 growth forecast for the UK economy twice in the past six months, having reduced its estimate from 2.4% in November 2015 to 2.1% in February. It is now more pessimistic than the IMF or the Office for Budget Responsibility, the independent body that produces forecasts for the Treasury. |
| The risk of Brexit had undermined growth, the thinktank said, adding: “The outcome of the referendum is a major risk for the economy. A vote for Brexit would heighten uncertainty, raise the cost of finance and hamper investment.” | The risk of Brexit had undermined growth, the thinktank said, adding: “The outcome of the referendum is a major risk for the economy. A vote for Brexit would heighten uncertainty, raise the cost of finance and hamper investment.” |
| Mann said breaking out of the low-growth trap required action on three fronts: the stimulus provided by central banks needed to be backed up by higher infrastructure spending and structural reform. | Mann said breaking out of the low-growth trap required action on three fronts: the stimulus provided by central banks needed to be backed up by higher infrastructure spending and structural reform. |
| “The prolonged period of low growth has precipitated a self-fulfilling low-growth trap,” she said. “Business has little incentive to invest given insufficient demand at home and in the global economy, continued uncertainties and a slowed pace of structural reform. Negative feedback loops are at work.” | “The prolonged period of low growth has precipitated a self-fulfilling low-growth trap,” she said. “Business has little incentive to invest given insufficient demand at home and in the global economy, continued uncertainties and a slowed pace of structural reform. Negative feedback loops are at work.” |