Australia’s GDP will be cut by 1% over the long term and exports will drop by more than 1.2% in the fallout from Britain’s departure from the European Union, according to initial analysis by KPMG economists.
“The implications for Australia are still being worked through, but any impact will be felt via our trade accounts,” says KPMG Australia’s chief economist, Brendan Rynne.
KPMG’s best case scenario assumes that GDP in the UK declines by about 3% between now and the transition period and stabilises around this for the medium term.
The worst case scenario assumes UK GDP is down about 5%.
The flow on to Australian by 2031 is expected to mean GDP 1% lower under a best case scenario and 1.4% lower under a worst case scenario, as this chart shows:
“As anticipated, the primary cause of the fall in GDP is a deterioration in our net exports position,” says Rynne.
KPMG’s preliminary forecasts show exports falling between 1.2% and 1.7% over the medium term and imports rising between 0.8% and 1.1%.
“Overall, however, the impact on the real rate of growth in Australia’s GDP is relatively minor,” says Rynne.
Under the initial forecasts, Australia’s GDP growth starts to be affected from around the 2022 financial year and is shaved by between 0.1% and 0.2% by 2031.
“These forecasts are predicated on the UK government implementing new trade agreements that continue to allow negotiated access to markets in the EU,” says Rynne.
“Should these agreements enable freer trade than has been presumed, then the economic consequence of Brexit may be less dramatic.
“Conversely, if the UK gets ‘shut out’ of EU markets more than anticipated, then the consequence will be worse.”
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