Brexit poses a big threat to global economy: OECD

Britain’s departure from the EU 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.

All three OECD scenarios see UK GDP growth held back long-term

“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.

“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.

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.

“The forthcoming UK referendum on EU membership has already raised uncertainty, and an exit would depress growth in Europe and elsewhere substantially.”