According to the majority of economic studies and to the European
Commission's estimations, Brexit will be far more damaging for the UK
than for the European Union (EU). From the economic point of view, it
seems less harmful for both to be able to negotiate a soft Brexit with
rather small barriers. However, for political reasons the EU may want to
deter other nations from following the UK’s path and may want to
negotiate a self-damaging hard Brexit.
Brexit implies a shrinking of the EU market and, in that sense, is not
good news for UK neither for EU. Firms lose profit opportunities.
However, given the much larger size of EU, the process is much more
harmful for UK. In fact, the EU is able to recover a sizeable part of
its lost trade with the UK through the rise of intra-EU free trade. The
UK has forsaken this privileged preferential access to EU, thus,
negatively affecting half of its aggregate exports and imports. Overall,
although Brexit may offer good prospects for some manufacturing firms
coming from outside the Brexit block, at a more aggregate level benefits
for outsiders seem scarce. Brexit’s scope seems confined to the EU
The negative impact of trade and foreign direct investment seems to be
more important than UK’s contributions to the EU budget (with a maximum
net fiscal saving of -0.53% of UK’s GDP), or reductions in the flows of
migrants. However, very restrictive migration policies in the UK, such
as a reduction in “all EU migrants”, “net EU migrants” or the “5-year
policy” the government is talking about could be even more damaging than
trade and FDI related effects of Brexit.