CASE Highlights

Trade, Innovation, and Productivity

The Brexit trade negotiations came into a deadlock with the EU and the UK failing to reach a deal by the scheduled deadline of October 15th. Alongside the negotiations on, inter alia, the matters of fisheries and competition rules as well as the intra-UK disagreement on the Internal Market Bill, the discussions are still ongoing on the issues such as Citizens’ Rights and Ireland and Northern Ireland Protocol. With the end of the transition period on the December 31st, 2020 and legal proceedings launched by the EU on the horizon, the risk of the hard Brexit (no deal) is now higher than ever. Should it materialise, the trade relations between the EU and the UK will be governed by the WTO rules. This implies an imposition of tariff and non-tariff barriers to trade by the EU versus the UK exports at the level currently applied to third countries not enjoying any additional preferences and vice versa. The hard Brexit could thus have a significant and negative impact on both economies given that the EU accounts for 47% of UK exports, while the UK represents around 8% of total EU exports. With the return to trade negotiations in the last week of October, both sides enter a make-or-break phase.

At the same time, in case of the hard Brexit, the UK may decide to lower the MFN (most-favoured nation) tariff against all WTO members to counteract the disruption of imports. For now, London has moved forward with completing its first post-Brexit trade agreement. The new deal with Japan will make about 99% of the UK exports to Japan tariff-free with a potential to boost bilateral trade between the countries by EUR 16.8 billion and increase the UK GDP by 0.07% over the next 15 years. 

Labour Market and Environment

The European Vocational Skills Week 2020 will take place between November 9th and 13th. Being dedicated to the topic of ‘VET for Green and Digital Transitions’ this year’s event is line with the European Commission’s recognition of the crucial role of the VET system un the fight against COVID-19 consequences. As a platform to make VET’s potential more widely known, this annual event will allow local, regional and national organisation to share the very best of vocational education and training across Europe and beyond.  

The upskilling of teachers in proper digital competences is indeed a crucial pillar of action for the development of sustained, resilient, and up-to-date VET systems during COVID-19 Pandemic. The OECD postulates that the VET systems require solutions to (1) digitalise their approach to education and courses curricula; and (2) support and accelerate digitalisation of other sectors because during forthcoming months. Indeed, while only 24.1% of the continuing vocational training (CVT) providers in the EU offered digital skills training, about 12.9% of the EU companies recognise lack of suitable courses on the market as the main reason for non-provision of CVT.

Macro and Fiscal

As a result of stronger economic outcomes in the second quarter than expected and signs of a stronger recovery in the third quarter, the IMF has revised its global economy forecast to a 4.4% contraction in 2020. Yet, the foresight for the EU is worse than previously outlined. The IMF’s World Economic Outlook published in October forecasts the EU will contract by 7.6% with the 2020 budget deficit reaching 9.7% of GDP, which is 250 basis points higher than the April 2020 forecast. The same study predicts the EU will recover by 5% and the budget deficit will hit 4.8% of GDP in 2021. These numbers are potentially subject to revision, however. With the recent surge of the new COVID-19 cases in the EU and a gradual reintroduction of harsh restrictions, including potential lockdowns, the economic activity may fall sharply and the governments may announce new stimulus packages which would put further pressure on the budget deficits.

 

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