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No-deal Brexit would hit south-eastern European economies hardest among EBRD regions

By Anthony Williams

A departure of the United Kingdom from the European Union (EU) with no agreements on trade and investments – a no-deal Brexit – would hit south-eastern European countries hardest among the emerging economies where the European Bank for Reconstruction and Development (EBRD) invests.

In its latest Regional Economic Prospects report, the EBRD said a no-deal Brexit scenario would severely disrupt cross-border supply chains encompassing the UK and the EU-27 economies in the short term.

Unless other member states increased their contributions to the EU, Brexit would lead to a 10 to 15 per cent decline in structural and accession funds available to countries in central and south-eastern Europe, amounting to a reduction of up to 0.4 percentage points of GDP in EU-supported investment.

Brexit might also weaken perceived prospects of EU accession for candidate and potential candidate countries. A slower reform momentum would then weigh on growth.

“Cumulatively, the economic impact of a no-deal Brexit is projected to be largest for economies of south-eastern Europe, mainly through disruption to trade linkages encompassing the UK and other advanced economies in Europe, the impact on the EU accession reform momentum and a reduction in the EU structural and cohesion funds,” the report said.

The report said the reintroduction of a customs border with the EU would lower the demand for EU exports of finished goods to the UK.

The Slovak Republic and Hungary had exports to the UK with an estimated domestic value added of 1.5 to 3 per cent of their GDP, mainly in the automotive and machinery sectors.

Poland and Lithuania also had sizable exports of food products, worth 1 to 2 per cent of their GDP.

Indirectly, lower exports from Europe’s advanced economies to the UK would, in turn, affect demand for imports of intermediate goods from the Bank’s regions, the EBRD said.


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