The OECD world economic outlook for June 2020 was released yesterday and makes grim reading. They say the global economy is "experiencing the deepest recession since the Great Depression in the 1930s, with GDP declines of more than 20% and a surge in unemployment in many countries." And they firmly squash the idea of a rapid bounce back to normal conditions. This is not going to happen and we will feel the impact of the pandemic for several years.
As usual Britain finds itself at the bottom of the league table and set to take the biggest hit of all. Our figures are HERE.
The OECD look at two scenarios. Firstly where we are mercifully spared a second wave, in this case we will see a drop in GDP of 11.5% fractionally worse than France and Italy and about twice that of Germany. And secondly, if we suffer that second wave, as the Chief Medical Officer at the press conference yesterday seemed to indicate was a distinct possibility, GDP would see a fall of 14.4%.
These are seriously massive numbers, way ahead of the 2008-09 financial crisis which saw a mere 4.2% lopped off GDP. The OECD report says:
"The COVID-19 crisis has led to a severe economic contraction. GDP is projected to fall by 14% in 2020 if there is a second virus outbreak later in the year (the double-hit scenario). An equally likely single-hit scenario would still see GDP fall sharply by 11.5%. In the double-hit scenario, the unemployment rate is set to more than double to 10% and remain elevated throughout 2021, despite widespread use of furloughing. Measures to limit the effects of the crisis in that scenario would push the fiscal deficit up to at least 14% of GDP in 2020."
And like all sensible financial organisations, economists, trade bodies and regulators it adds this:
"Given the economic disruption caused by COVID-19, a temporary extension of existing trading relationships with the EU beyond the end of 2020 would help reduce uncertainty."
Would help reduce uncertainty! What a euphemism that is.
How stupid do you have to be to pile one crisis on top of another?
The question is will they do it? Probably not and as Peter Foster says the EU will use our own ticking clock against us:
The jockeying starts. But it can't hide fact that UK is still on the wrong side of the ticking clock. Refusing to extend gives UK less leverage, ultimately, not more because 'no deal' consequences fall asymmetrically on UK side. Same playbook from EU. Run down clock. Squeeze. https://t.co/1ZRCyTu8OL— Peter Foster (@pmdfoster) June 10, 2020
Because we are bound to be hit much harder, threatening to leave without a deal is just crying wolf and as someone pointed out the other day (I forget who) we have cried wolf so many times and then folded that nobody believes we would ever actually do it. It's an empty threat and if anything the EU27 are hardening their position on fishing rights. Member states have rejected Barnier's apparent suggestion of some compromise.
This rather gives the lie to the Brexiteers belief that the EU Commission and the unelected bureaucrats somehow rule the roost.
So, I return to my familiar theme. Sooner or later the idea that all you have to do is get tougher with the EU and you'll get what you want will have to be revisited. Cameron tried and failed. That bloody difficult woman Theresa May tried and failed. Johnson tried last year - and failed. He will fail again later this year.
Britain is like a prize fighter who keeps staggering to his feet only to be downed again and again.
Johnson's choice will be a no deal Brexit or accepting the EU deal - or something so close to it only a lawyer will be able to tell the difference. He will dress it up as a victory of course and no doubt The Daily Express will accept it as such but it will be capitulation.
The government has been warned loudly and consistently of the consequences of no deal and if we pass the June deadline for requesting an extension without having done so, you can be sure the voices of industry will get louder still.
Some people have suggested businesses are cowed at the moment because they are relying on government funding to stay afloat but even the hand that feeds you must be bitten if it tries to hurt you. So I expect senior business leaders to work together to increase the pressure on the government to request an extension.
Apart from the fact that as Carolyn Fairbairn at the CBI said recently, UK business is totally unprepared for a no deal scenario in December, the consequences of Brexit will be so obvious and so damaging no sane government would contemplate it. No government that wanted to survive till the end of January anyway.
Barnier has apparently ruled that an agreement is needed by October in order to allow all the national and regional legislatures to approve the deal, which will be a very tight squeeze anyway and assumes they will all pass it without any questions - very tall order.
Incidentally, there has been a bit of discussion about whether or not the EU could legally extend the transition period outside of the Withdrawal Agreement. Jean Claude Piris, a former DG of the EU's legal service claimed a few weeks ago that this is not possible and June 30th is the last possible day for an extension to be agreed. Well, here is another legal opinion arguing the opposite, and that assuming the legal and political obstacles in this country could be overcome, the EU has enough wiggle room to extend the transition.
So whatever is to come, July to September threatens to be a long hot summer.
