One of the most senior officials at the International Monetary Fund has stated that Brexit will likely have had “a large negative impact on the UK’s economy”. He cited the UK’s departure from the European Union, as an example of how trade fragmentation can be dangerous.
Gita Gopinath said that the UK’s departure from the EU’s customs union and single market in 2020 shows the negative consequences of breaking trade ties. It will hurt economic growth, and reduce cross-border investments.
Gopinath, in a Stanford, California, speech, said that imposing restrictions on trade would reduce the efficiency gains of specialisation and limit economies-of-scale, as well as reduce competition. Brexit is a good example. Brexit has been deemed to have had an adverse effect on the UK’s economy because of the interconnectedness between Europe and Britain.
IMF warns against fragmenting the world’s economy into competing blocks, citing Brexit to illustrate the damage caused by fragmentation
The official trade data paints a mixed picture of the UK’s post Brexit trade performance. Imports and exports to the EU, and to other countries, were hit hard, while services performed better than expected.
The G7 large economy group’s 2023 performance in goods trade was the weakest since 2015. Exports fell by 13.2 percent, and total imports by 7.4 percent, due to the weakening of European markets.
According to Resolution Foundation, the trade in services has boomed. It has risen by 14 percent in four years, from 2019, and is growing faster than countries like the US, France, and Japan. The services trade includes higher education, banking and financial services.
The IMF did not provide any estimate on the impact of Brexit in terms of trade or growth, but it has warned repeatedly that the UK economy would be among the slower growing ones of the G7.
Last year, the goods trade sector had its worst performance since 2015.
Gopinath made his comments in a speech that warned against the fragmentation of the world’s economy into competing blocs. One led by the US and another by China with a number of “nonaligned” nations in between. She stated that trade between these three blocs has fallen by 12 percent since Russia’s invasion Ukraine and foreign direct investment is down by 20 percent more than the trade within these areas.
The IMF has warned for years against the rise of protectionism, green industrial policies that favor domestic industries, and “reshoring” supply chains following three decades of globalisation.
Gopinath acknowledged that the geopolitical rivalries would make it “difficult” to return to a rules-based, multilateral trading system. She spoke days after Emmanuel Macron , the French President, and Ursula von der Leyen , head of European Commission , told President Xi , of China, that the EU will take steps to protect their economy from “oversupply of cheap Chinese industrial products”.
Gopinath urged governments to “keep the lines of communication open and stay engaged”. She said: “Dialogues between the US, China and other countries — as we are seeing right now — can prevent the worst from happening.”