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2018/10/24 / Erste Group Research

CEE Special Report - Would ‘hard Brexit’ be hard for CEE?

Brexit to have negative impact on long-term growth. Cut in EU funds to be negative for investment in CEE. Inflow of migrants from CEE to UK is likely to be smaller in years to come

There is a broad consensus that a ‘hard Brexit’ is likely to have a negative
impact on long-term growth.
The IMF estimates the output loss for the EU of up to 0.5% in the case of a ‘hard
Brexit’ scenario, with a negative impact varying across countries. For example,
the long-term impact on the Czech Republic could reach a decline in output at
around 1%, for Hungary a bit less, while for Poland roughly half of the Czech

Negative direct impact would come from less trade, while indirect impact
stems from slower Eurozone growth and lower investment.
In the world of complex trade linkages, not only direct relations, but also the
position in the global value chain matters. In our view, a slowdown of the Eurozone would hurt the CEE growth to a
greater extent than Brexit itself. Further risks to economic growth lie in the
deterioration of market sentiment and investment activity in Europe, as strategic
investments may be delayed. Although it is difficult to quantify at this moment, it
is reasonable to assume that a lower amount of the EU funds flowing to CEE is
likely to provide less ‘easy money’ for investment activity.

One important aspect of the post-Brexit world concerns migration issues. The
biggest number of migrants comes from Poland (amounting roughly to 1mn,
according to ONS data), which comprises a third of total Polish migration
according to OECD data. A further 2% of the Romanian population lives in the
UK, followed by Slovakia (1.5% ) and Hungary (1%). Since the Brexit vote, the
inflow of migrants has been dropping, and as of March 2018 more people left
than entered the UK from CEE84. On the other hand, we still saw more people
coming from CEE2 (Bulgaria and Romania) in the last couple of years.
After Brexit, we expect fewer migrants to choose the UK as their destination.
However, we believe that the majority of those who already work and live in
Great Britain are likely to stay in, with only part willing to come back.

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
Topic in focusFX, Macro/ Fixed income
Economy in focusCroatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar
Sector in focus-


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