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Chinese economy to surpass EU by 2022, say market analysts

By ANGUS McNEICE in London | China Daily Global | Updated: 2020-02-18 08:55
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Photo shows the night view of the CBD area in downtown Beijing, capital of China, May 11, 2017. [Photo/Xinhua]

Up to this point, it's arguable that the negative effects of Brexit have been predominantly owned by the United Kingdom.

The result of the 2016 referendum triggered tribalistic divisions in the British public that remain to this day. Several major corporations have moved or intend to move their headquarters from Britain to continental Europe, and the total cost of Brexit to the UK economy will reach 200 billion pounds ($262 billion) by the end of this year, according to analysis by Bloomberg.

The European Union, meanwhile, has remained on the front foot over much of the negotiation period, and solidarity is high between member states and across the citizenry.

In a stirring show of unity, hundreds of Members of the European Parliament linked hands and sang the traditional Scottish farewell folk tune Auld Lang Syne after they ratified the withdrawal agreement last month.

The most recent European Parliament poll of EU sentiment among citizens revealed that 68 percent strongly back membership to the union, the highest level recorded in almost 40 years.

But there is no denying the UK was among the most powerful members of the EU, and the EU promises to lose much in this divorce.

A new study from market analysts Euromonitor International predicts that China's economy will surpass that of the EU by 2022, now that the UK and the EU have officially begun the disentanglement process.

The EU had a gross domestic product, or GDP, of $22.3 trillion in 2019, Euromonitor says, and would have achieved a GDP of $24.6 trillion in 2022 if the UK remained a member state. Instead, without the UK the EU is now on course to see GDP diminished to $16.9 trillion by 2022.

This compares with GDP growth from $14 trillion in 2019 to $17 trillion in 2022 in China, and an increased GDP from $21.4 trillion to $23.4 trillion in the United States for the same years measured.

Beyond the size of the economy, disruptions in trade and economic activity will have real impacts on EU member states.

"Manufacturing is uncertain in Germany right now and it will continue to have those troubles if a deal doesn't come through quickly in 2020," Giedrius Stalenis, Euromonitor International consultant for economy, finance and trade, told China Daily. "The investment will still be low in Europe, especially in the manufacturing sector."

With the UK officially out of the EU, both sides are set to thrash out a trade deal. This could conclude with the creation of a free-trade agreement, though there remains the possibility of a no-deal scenario where the UK trades on World Trade Organization, or WTO, terms.

"If the sides fail to reach a trade agreement, there is more than one possible outcome," Stalenis said."With an orderly no-deal Brexit we think that in one or two quarters normal trade can resume. In a disorderly no-deal Brexit, there may not be a resumption of normal trade within the first five years even. Trade will be severely dampened over that period."

Patrick Bisciari, an economist at the National Bank of Belgium, says that in a no-deal scenario, there would be a wide range of losses for EU nations.

"Small, open economies closely related to the UK are worse hit than other EU member states,"Bisciari said. "This is the case for Ireland due to geographical proximity, for Luxembourg with its economy specializing in financial services, and for Cyprus and Malta as they are Commonwealth countries, followed by the Netherlands and Belgium. A trade agreement could limit the losses from Brexit substantially both for the UK and the EU member states."

United Kingdom Prime Minister Boris Johnson has said he will pursue a Canada-style free trade deal with the EU. The Canada-EU deal sees no tariffs on most goods, however there are restrictions on banking and other services.

Johnson has also ruled out an extension on the transition period for the withdrawal agreement. Stalenis said this means the UK is on course to either reach a deal in 2020 or leave the EU without a deal and entering 2021 on WTO terms.

"While it is an attempt to strengthen the UK's negotiating power, an accidental no-deal scenario cannot be ruled out and became more likely after this amendment of the withdrawal agreement bill," said Stalenis.

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