The Organisation for Economic Co-operation and Development said that the U.K. could slip into recession if it leaves the EU without a deal as it lowered its global growth forecasts to the weakest levels since the 2008 financial crisis.
In a report published Sept. 19, the OECD forecasts real U.K. GDP growth of 1.0% in 2019 and 0.9% in 2020 — down 0.2 percentage points and 0.1 percentage point from its May outlook, respectively — if the country were to leave the EU with a transition pact.
However, UK GDP could be 2% lower than otherwise in 2020-2021 in case of a no-deal Brexit, potentially pushing the country into recession. The decline would be driven by "trade and uncertainty shocks" in the first year, as adverse supply-side costs begin to emerge over time.
Growth estimates for the eurozone were trimmed to 1.1% for 2019 and 1% for 2020. However, a potential downturn in the U.K. could spill over into European economies, with eurozone GDP projected to be around 0.5 percentage points lower in 2020-21.
Meanwhile, global growth is estimated to ease to 2.9% in 2019 and 3.0% in 2020, marking the lowest annual growth rates since the financial crisis. In May, the OECD had predicted that growth would reach 3.2% this year and 3.4% in 2020.
"Continued and deepening trade policy tensions are taking an increasing toll on confidence and investment, adding to policy uncertainty, and weighing on risk sentiment in financial markets," the OECD said. The Paris-based organization said a spike in oil prices due to rising geopolitical tensions is also contributing to financial volatility.
The body trimmed its GDP growth outlook for China to 6.1% this year and 5.7% in 2020 from 6.2% and 6.0%, respectively, in the prior forecast.
In the U.S., growth is projected to reach 2.4% in 2019 and 2.0% next year, representing downward revisions of 0.4 percentage points and 0.3 percentage points.
