The Secretariat of State for Trade commissioned a research to analyze in depth the effects of Brexit on the Spanish economy. To that end, the authors used a computable general equilibrium model that is capable of capturing the direct and indirect impacts of Brexit on a large number of productive sectors of goods and services.
Given the high level of uncertainty about the final agreement, the study analyzes four different scenarios. In all of them, Brexit would have a negative impact on the Spanish GDP and employment, as well as on trade flows and on inward and outward foreign direct investment. United Kingdom´s exit will entail obstacles to both commercial and direct investment flows, of greater or lesser intensity depending on the selected scenario, which will have a negative impact on the European main macroeconomic variables.
The Spanish GDP would fall between -0.64%, in the worst scenario of a no-deal exit, and -0.32%, in the best one, a soft Brexit. The study highlights that the impact of Brexit is mainly due to the expected increase in non-tariff barriers to trade and barriers to direct investment, while the role of tariff barriers would be much less important. It should be stressed that these results are consistent with those of previous studies. The contraction of the Spanish economic activity would be similar to that of the rest of the European Union, but much less than the United Kingdom’s fall due to its loss of preferential access to the huge European market.
This study quantifies the impact on production, exports and imports of 22 activity sectors and concludes that the impact of Brexit on them would be heterogeneous, experiencing some of them a much more intense shock.
It is important to bear in mind that even if the figures shown are a good approximation of the foreseeable impact, they should be taken with caution, especially at the most disaggregated level, since every model relies on assumptions that significantly simplify the economic reality.
This research was carried out in February 2020, before the deep economic impact of COVID-19 was known and before the EU-UK Trade and Cooperation Agreement was reached.