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Now it’s official: Brexit will damage the economy long into the future Jonathan Portes

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“Now it’s official: Brexit will damage the economy long into the future” Jonathan Portes

We’re used to hearing apocalyptic descriptions of the impact of the Covid-19 pandemic on the UK economy: “the largest fall in economic output since 1709”, was the Office for National Statistics’ verdict eight months ago.

Yet the Office for Budget Responsibility, in its report on Wednesday’s budget, estimates that the long-term impact of Brexit will be more than twice as great as Covid. It thinks that Brexit will reduce UK productivity, and hence GDP per capita, by 4%, while the impact of Covid on GDP will only be 2%, with a slightly smaller impact on GDP per capita.

This shouldn’t be surprising. The fall in output in 2020 was both inevitable and desirable – it was not, in economic terms, that different from an extended holiday. Just like a holiday, we chose to shut down large parts of the economy. The difference was that it was by necessity – to save lives – rather than by choice, but the consequences aren’t that different. The economy shrank, and by a lot.

Holidays don’t reduce the productive capacity of the economy. If a factory shuts down for a month, the machines are still there when it reopens. Similarly, when workers return, they still know how to do their jobs. The virus does not destroy factories, roads, buildings or software and, while its human toll has been dreadful, the impact on the size or composition of the working-age population will be relatively small in macroeconomic terms.

So the worry was not the huge short-term fall in GDP. It was that temporary closures would do permanent damage to the economy. The biggest risk was that, as in the 1980s, we allowed mass unemployment to become entrenched, or viable businesses to go bust.

But, thanks to the furlough scheme and other business support measures, we seem to have avoided that risk in the UK and elsewhere. Indeed, US GDP – boosted by Joe Biden’s stimulus package – has already exceeded its pre-crisis level. The UK is not that far behind, albeit still well below the pre-crisis trend.

Indeed, the most obvious short-term economic problem in most advanced economies are now supply bottlenecks and labour market mismatches as economies reopen, leading to rising wages and shortages of some goods. But while this will – as the OBR also says – reduce both growth and, via inflation, real wages, it will mostly be temporary.

The OBR isn’t entirely sanguine – it still thinks Covid will permanently push some people out of the labour force, through early retirement or potentially long Covid, and that there will be some lasting hit to productivity. But things could have been a lot worse.

By contrast, Brexit is, by its nature, a long-term issue. Just as it took decades for the UK to see the full benefits of EU membership, we’ll still be discussing the economic impacts of Brexit long after I’ve retired.

The direction of those impacts isn’t controversial. The principle that increasing barriers to trade and labour mobility between two large trading partners will reduce trade and migration, and that this will, in general, reduce economic welfare on both sides – but especially for the smaller partner – isn’t really at issue.

While there was no shortage of politicians who argued that, somehow, new trade barriers would not make much difference, or that trade with our closest and largest single trading partner could easily be substituted with trade with the rest of the world, no credible economic analysis endorsed such claims.

Nor is the OBR’s 4% estimate of the impact on the UK economy that different from that of independent economists – we at UK in a Changing Europe put it at just under 6%.

But crucially, both those (and other) estimates predated Brexit. So the news here is that the OBR has taken a hard look at the evidence to date on the actual impact of Brexit. Its conclusion, briefly, is: “so far, so bad”. That is, the UK’s trade performance this year is consistent with its original estimates that UK exports and imports would both fall by 15%.

Indeed, in some respects, the data so far looks even worse than that – UK exports have already fallen by approximately this much compared to pre-pandemic levels, while advanced economies as a whole have seen trade grow. And, again in common with external analysts, the OBR sees no evidence that trade deals with third countries, or any of the other putative economic benefits of Brexit, will offset this in any meaningful way.

No model includes everything. The OBR’s is no exception. It hasn’t accounted for the damage done to education during the pandemic, especially for poorer kids. Here, the government’s failure to fund a serious catch-up programme could leave permanent scars – both economic and social. And, on the other side, a more liberal migration system towards non-European migrants could, in principle, offset some of the damage of Brexit.

But so far, it looks as if, from an economic perspective, Covid is for Christmas, while Brexit is for life.

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NCAA sanctions Kenya Airways over passenger complaints

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The Nigeria Civil Aviation Authority (NCAA) has sanctioned Kenya Airways for several consumer-related violations involving three passengers, including one Gloria Omisore.

This is contained in a statement on Friday by Michael Achimugu, Director of Public Affairs and Consumer Protection.

Achimugu stated the NCAA issued a sanction letter on Wednesday to Kenya Airways regarding the passengers’ complaints

“The infractions include failure to provide care, lack of transparency in carriage terms, poor communication with the Authority, and mishandling refunds and baggage.

“In accordance with the NCAA Regulations 2023, Kenya Airways must pay fines and compensate each affected passenger with 1,000 special drawing rights.

“The airline has seven days to comply. Failure to do so will result in more severe penalties,” Achimugu said

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Nigeria repays $3.4 billion COVID-19 funding – IMF

Nigeria has repaid $3.4 billion in emergency funding it received from the International Monetary Fund (IMF) to help the country cope with the impact of the coronavirus pandemic five years ago, the International Monetary Fund (IMF) said on Thursday.

IMF resident representative to Nigeria Christian Ebeke said in a statement that, as of April 30, the country had “fully repaid the financial support” it received under the Fund’s Rapid Financing Instrument, a facility that provides urgent balance of payments funding to member nations.

“Nigeria is expected to honour some additional payments in the form of Special Drawing Rights charges of about US$30 million annually,” Ebeke added.

The most recent data from the Debt Management Office shows that Nigeria last year spent $4.66 billion to service its foreign debt, of which $1.63 billion was to the IMF. (PL/REUTERS)

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IMPI rejects IMF, World Bank’s 3% economic growth forecast for Nigeria

The Independent Media and Policy Initiative (IMPI) has questioned the rationale by the International Monetary Fund (IMF) for downgrading its economic growth projection for Nigeria in 2025 from 3.2 percent to 3.0 percent on the back of the global oil slump.

This according to the think tank is because the Nigerian economy has not, of late, been solely about oil especially with the substantial growth in the country’s non-oil export year-on-year as a result of ongoing economic diversification and the impact of government policies.

In a policy statement signed by its Chairman Dr Omoniyi Akinsiju, IMPI argued that it was more favourably disposed to the 7 percent growth forecast by Minister of Finance and Coordinating minister of the Economy Wale Edun.

It said, “In its economic outlook, the IMF downgraded Nigeria’s economic growth forecast for 2025 by 0.2 percentage points to 3.0 per cent, down from 3.2 per cent, while growth for 2026 was also revised downward by 0.3 percentage points to 2.7 per cent.

“The IMF justified this forecast by citing projected lower global oil prices as a significant risk to the country’s fiscal and external balances. We wonder how a single factor can be responsible for the projected massive decline in the size of an economy, moreso, when Nigeria is moving away from its dependency on crude oil earnings.

“However, the World Bank’s projection, on the other hand, offers a more optimistic view. In its report, the World Bank projected that Nigeria’s economy would grow by 3.6 per cent in 2025, building on an estimated 3.4 per cent expansion in 2024 and, thereafter, strengthening to 3.8 per cent by 2027.

“The bank credited the federal administration’s possible sustenance of economic reforms with the gradual stabilisation of the macroeconomic environment. Critical to the World Bank’s projection is the expected improvement in the performance of the non-oil sectors, mainly services such as financial services, telecommunications, and information technology, as well as easing inflationary pressures and improved business sentiment.”

IMPI also argued that it was not unusual for countries to pick holes in IMF’s projections while citing the examples of Mexico and Zambia where it was proved wrong.

“IMF’s GDP data discrepancies are not unique to Nigeria. At different times, its country members worldwide have had cause to dispute the body’s projections on various grounds. Mexico, for instance, has also disagreed with the IMF on its forecasts.

“In its World Economic Outlook, the IMF forecasted a 0.3 per cent contraction in Mexico’s economic growth for 2025, down from the Fund’s January forecast of a 1.4 per cent expansion, as U.S. tariffs bite into exports.

“In dismissing the IMF’s forecast, the Mexican President Claudia Sheinbaum declared, “We do not know what it is based on. We disagree. We have our economic models, which the finance ministry has, that do not coincide with this projection.”

“She added that public investments would prevent the economy from contracting. She touted her government’s “Plan Mexico,” an effort to boost domestic industry amid tariffs U.S. President Donald Trump imposed on some imports from Mexico.

“From the foregoing, it is clear why Nigerians should not take the recent IMF’s negative economic projections very seriously. Experience has shown that several IMF projections on developing economies, such as ours, often prove inaccurate.

“In 2008, the IMF predicted that Zambia would be hit by the fall in copper prices during the financial crisis. The IMF was proven wrong as the Zambian economy survived the global downturn.

“We find comfort in the submission of the US Department of State, which described Nigeria as an economic miracle while commending the federal government’s ongoing reforms,”IMPI added.

On concerns by both the World Bank and IMF on poverty in Nigeria, the think tank posited that the incumbent federal administration is better placed than its predecessors to tackle the issue.

“We acknowledge the concerns the World Bank and the IMF raised about the limited impact of the policies on reducing poverty among everyday Nigerians.

“But the truth is that before 2023, the country had been a site for endemic poverty, with the number of people living in absolute poverty defined in terms of the minimal requirements necessary to afford minimal standards of food, clothing, healthcare and shelter, reaching a high of 99,284,512 people in 2010, about 60.9 per cent of the population at that time.

“In 2004, NBS estimated the poverty rate to be 54.7 per cent in 2004 and this was despite Nigeria experiencing economic growth, with crude oil prices ranging between $100 and $120 per barrel and a daily production of 2.3 million barrels.

“When the dynamics of the years, especially the oil boom era between 2010 and 2014, are compared to the evolving characters of the present-day economy, we see sufficient indicators of the impact on the average Nigerian in the near term.

“In other words, if there is ever a possibility of reducing the number of Nigerians living below the poverty line, it is under the current federal administration.

“For instance, the recently released Central Bank of Nigeria’s (CBN) March 2025 economic report indicated continued expansion in economic activities across Nigeria. The composite Purchasing Managers’ Index (PMI), at 52.3 percentage points, indicates economic expansion for the third consecutive month in 2025,” it concluded.

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