This is how catastrophic Brexit could be for Germany

The economic impacts of Britain voting to leave the EU — a so-called Brexit — would reach far beyond British shores and have a direct impact on Germany’s economic growth in the next two years, according to new research from one of the country’s best respected economic institutes.

According to the latest analysis by the German Institute for Economic Research (DIW Berlin), Brexit would have a materially negative effect on the biggest economy in Europe, and reduce German GDP growth by as much as 0.5% in 2017, with GDP growth losing 0.1% this year as a result of the vote.

Here’s what the institute had to say on Wednesday:

Brexit “could dampen growth of German exports. According to the DIW calculations … this would in itself reduce the growth of GDP by 0.5 percentage points next year and by 0.1 percentage points this year. It should be noted that this is only the direct effects that are reflected in the German exports to the UK. Indirect effects, such as financial market turmoil, declining FDI and price effects are difficult to estimate accurately and therefore not considered in the calculations.”

Ferdinand Fichtner, the head of economic policy at DIW added (roughly translated from the original German): “In addition, the Brexit referendum discussion is responsible for a lot of uncertainty. Should Britain’s population decide to leave EU, it could slash Germany’s economic growth already this year.”

Pro-remain campaigners have already released huge numbers of doom-laden predictions about what could happen in the event of Brexit, with the IMF, OECD, Bank of England, and US President Barack Obama all warning that Britain leaving the EU would crush growth in the UK, and have a knock-on effect for the rest of the world. However, Wednesday’s data is one of the first times a deep dive analysis of the actual impact of Brexit on another individual nation has been published.

The big driver of the drop in German GDP growth following Brexit would be the impact on trade. Here’s more from the DIW (again translated from the original German):

Since the United Kingdom is the third largest trading partner of the German economy, the effects are likely to be acutely felt, especially in export-oriented industries such as the automotive, chemical and pharmaceutical industries as well as mechanical engineering. Overall, Germany exported goods and services worth about 120 billion euros to the UK, or about eight per cent of all German exports.

Within Germany, Brexit is generally disliked as an idea, with many of the country’s biggest and most influential media organisations backing the Remain campaign in recent weeks. According to the BBC, influential news magazine Der Spiegel said in this week’s edition that: “The only internationally known politician in favour of a Brexit, is Donald Trump – and, if nothing else does, that alone should make the British worry.” The magazine goes on to say that Brexit would be “a threefold catastrophe: bad for Germany, bad for Britain and cataclysmic for Europe.”

Britain will vote on whether or not to leave the European Union on June 23.

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