No-Deal Brexit Would Slam German Growth in 2020

Britain quitting the European Union without a deal on October 31 would deal a harsh blow to Germany's already stuttering economy in 2020, leading think-tanks said in Berlin Wednesday.

"For the coming year, we should reckon with a deduction of 0.4 percentage points" in growth if Britain crashes out, experts from five leading economic institutes said in a joint statement.

By contrast, "if Britain's future relationship with the EU is reliably clarified, there should be a swift brightening of economic prospects," they added.

A no-deal Brexit would create new barriers at UK-EU borders as both sides are legally required to levy tariffs and check goods for regulatory compliance, while trade in some services could be stopped or hindered.

Combined with a fall in the pound and massively increased uncertainty over future economic relationships undermining business investment and consumer spending, British demand for imports would fall.

That would have direct and indirect effects on the biggest manufacturing economies in the 19-nation eurozone.

"Above all Germany, but also Italy and the Netherlands" would be hardest hit by a no-deal Brexit, the think-tanks found.

Nevertheless, there would be "no dramatic collapse in economic development in the euro area," they added.

Germany is widely believed to have suffered a technical recession -- two successive quarters of negative growth -- over the summer, after its economy shrank by 0.1 percent between April and June.

"The United States' trade conflicts with China and the EU," as well as Brexit uncertainty, were to blame for slowing investment worldwide weighing on German manufacturing firms, the economists said.

Meanwhile, output in the vital automotive industry has fallen more than 20 percent since mid-2018, they noted, reflecting producers pushing through a costly and complex transition to electric and autonomous driving.

While consumer confidence remains high and the services sector has proven resilient, there are signs industrial weakness is spreading into that part of the economy, too.

Looking ahead, the economists expect growth of 0.5 percent in 2019 and 1.1 percent in 2020 -- 0.3 and 0.7 percentage points lower compared with forecasts earlier this year.

But "an economic crisis with marked capacity under-utilization should not be expected, even if downside risks to growth are currently high," the think-tanks said.