IFO Chief: Hard Brexit Could Lead To Recession In Germany

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Today, the head of the Institute for Economic Research (Information and Forschung, IFO) that is based in Munich, Clemens Fuest, warned that a hard Brexit could lead Germany into a recession. In an interview with Deutschlandfunk, a public broadcaster, Fuest said that if the United Kingdom leaves the European Union with no deal, “that could be the drop that causes the keg to overflow” as far as the economy of Germany is concerned.

He added: “That could take us from weak growth to a slight contraction in the economy.”

He continued:“And we would call that a recession.”

He disclosed that the contraction would not initially be reflected in the employment market, however, he said that it could also become a problem there too in the mid-term.

Recently, the Council of Economic Experts of Germany lowered its GDP growth forecast for the year to 0.8 percent, from 1.5 percent last November. They warned that the economic boom of the country was over for the time being, however, the noted that they currently do not expect a recession, thanks to a healthy domestic economy.

Fuest disclosed that there was the idea in the United Kingdom that it would make good trade agreements with the United States of America and other countries, “for example, the countries of the former British empire,” however, he noted, that the profits that Britain could make in trading with the United States are nothing as compared to what it will lose in trade with the European Union in the event of a hard Brexit.

Fuest stated: “One thing is clear: one trades above all with one’s neighbours, and that is still the EU.”

He believes that the best option for the United Kingdom would be to significantly extend the Brexit deadline, by around two years, to allow the country to participate in the next parliament elections of the bloc and for both the European Union and the United Kingdom to reconsider their options.

Fuest stated: “I believe that one thing that the EU did not do right was to insist on only negotiating the transition and not discussing a long-term agreement.”