Luxembourg would be among the hardest hit EU countries in case of a hard Brexit, the International Monetary Fund has warned.
In a pair of annual reports, the IMF estimated that the EU27’s economy would shrink by 1.5% if trade with the UK reverted to the global minimum rules, a so-called WTO scenario. That figure would rise to nearly 4% for Ireland.
“suggest euro area real output would decline by 0.3 percent in the long run in the event of a standard free trade agreement, with Ireland’s income level falling the most in the EU-27 by about 2 percent, followed by other countries such as Belgium, Luxembourg, Malta, and the Netherlands.”
If the UK joined Norway in the European Economic Area, the impact on EU economies would be “negligible”.
“Countries that are more integrated (Ireland, Luxembourg, Netherlands, Belgium, Malta, and Cyprus) will likely suffer disproportionally from Brexit. Other countries, such as Germany, could also be affected via supply chains links.”
4% of Luxembourg’s GDP was tied to value added exports to the UK, the global financial institution stated. That’s the second highest proportion after Ireland.
The fund said the lack of progress in talks between Brussels and London has raised risk of a hard Brexit, according to the Guardian. The newspaper quoted the IMF’s Mahmood Pradhan as saying:
“We are very concerned. It’s quite late in the process and we don’t see any clarity yet on the future relationship and we’re getting near some important deadlines.”