Modelling the Long Term Potential Macroeconomic Impact of Brexit on Wales

This paper employs a computable general equilibrium (CGE) dynamic simulation model to analyse how Brexit is likely to impact the Welsh economy. The model simulates two potential future trade relationship scenarios between the United Kingdom (UK) and European Union (EU) for 29 March 2019: (a) No-deal Brexit, i.e. trading partners revert to World Trade Organization (WTO)rules; (b) Limited transition period and/or extension of Article 50. The model demonstrates how Welsh exports and imports, output, prices and employment are likely to be impacted from Brexit in the long-term. The scenarios modelled present a negative forecast for the Welsh (and UK) economy and industry, and show that the macroeconomic variables are sensitive to the policy disruption caused by Brexit. Projections show gross domestic product (GDP), GDP per capita, trade, investment and employment losses for the Welsh economy. A no-deal Brexit, which sees the UK reverting to trading with the EU on WTO terms, generates maximum losses for Wales (and the UK) in the long-term. In light of the results, it is important to avoid a no-deal Brexit that sees high losses and tariff barriers returning. A transition period arrangement or an extension to Article 50 also projects long-term losses for Wales. However, losses depend on the length of transition period and results show that a longer transition minimises losses for Wales (and the UK). From a policy perspective, a deal with an extended transition period should be agreed between the UK and EU as soon as possible to enable the continuation of existing EU-Wales trading arrangement.