UK GDP growth to outpace Germany this year if no-deal avoided

The UK economy could grow faster than its German counterpart this year if it can avoid a no-deal Brexit, according to Euler Hermes, the world’s leading trade credit insurance company.

The insurer has forecast 1.2% year-on-year GDP growth for the UK economy in 2019 if negotiators can sign a UK-EU separation agreement this year. Securing a Brexit deal remains the most likely scenario, according to the firm, with a probability of 70% that it will happen.

However, should an agreement take longer to sign, the continued uncertainty suggests slower growth and downside risks to that forecast. If the UK leaves without an agreement on WTO rules, the economy would see a -1% decline in GDP this year.

In contrast, Euler Hermes has cut its 2019 growth forecast for Germany from +1.7% to +1%, and for France from +1.7% to +1.2%. It points to slowing economic momentum following a sharp deceleration in activity at the end of 2018.

Stéphane Colliac, senior economist, Euler Hermes, said: “Most major European countries have their own concerns about future economic performance. Germany and France are wrestling with trade tensions, political instability and social challenges that are dampening momentum. The policy solutions to these issues are putting a significant amount of fiscal pressure on government budgets in Western Europe, too.”

The insurer says that Germany is suffering from trade uncertainty, political instability and a significant regulatory shock to its automotive industry following the diesel scandal and new Worldwide Harmonised Light Vehicle Test Procedure (WLTP). The country is also expected to see a decline in its fiscal surplus as it forges a more progressive pension system.

France will see its fiscal deficit increase as it tries to calm social tensions amid the ‘gilets jaunes’ unrest. The country is also tackling a considerable downward adjustment to its international trade performance.

Milo Bogaerts, CEO Euler Hermes UK and Ireland, added: “The UK can be encouraged by its strong economic foundations and long-term growth fundamentals. There will be more uncertainty in the years ahead, not least in the all-important trade deal negotiations that will start after the UK has left the EU. For now, UK firms should focus on building up resilience in their supply chains. Furthermore, they should be monitoring even more closely the financial health of their business partners in Germany and France.”