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When will this Brexit really come? One wonders who is not following too closely the negotiations on Britain’s exit from the European Union. The UK officially left the EU at the end of January. But there will be a transitional phase until the end of the year, during which both parties are negotiating their future relationships, and there has been little progress so far.
In the German economy, on the other hand, the Brexit referendum in June 2016 has provided facts for a long time. Sales and exports of German companies on the island have since declined in most industries, and losses in some cases are significant. That shows a study by auditing firm Deloitte, due to be released on Tuesday. A total of 190 German-based companies employing at least 100 people in British subsidiaries were examined.
Therefore, the economic ties remain great. The surveyed companies employ around 375,000 people in the UK, where they earn an average of every fourteen euros. The auto industry alone has a turnover of almost 50 billion and the island remains an important market for the German financial sector and the transport and logistics sector.
But in 2015, the last year before the referendum, companies still made every eleven euros in Britain. Since then, sales have dropped an average of twelve percent. The decline was strongest in banks and insurance companies, for which the London financial center has been of great importance so far.
Exports to Britain fell by an average of six percent, and in the auto industry they even fell by a quarter. For comparison: overall, German exports increased by eleven percent in the same period.
Only wholesale and retail traded against the trend, with sales increasing by almost three billion euros. “On the one hand, this is because of discount stores, which also benefit from uncertainty,” says Alexander Börsch, Deloitte’s chief economist. Aldi and Lidl have significantly increased their market share, also because the British fear rising food prices ahead of Brexit. On the other hand, according to Börsch, online retailers were also able to expand their business in Great Britain.
Most of the industries examined, however, earn less in the UK market than a few years ago. This is mainly due to the exchange rate of the pound, which has fallen around 15 percent against the euro since the exit referendum. Exports of goods have fallen “in line with the pound’s exchange rate,” says Börsch.
However, until now it is not possible to speak of a flight of German companies, because the number of local employees has remained constant compared to 2015. This is probably also due to the great uncertainty that still exists about future business relationships. “Companies do not know exactly what the world will be like in 2021. That is why strategic decisions are postponed,” Börsch suspects. At the moment: “Connections will not be cut.”
However, falling sales and exports have already made UK business less important to many companies. The share of sales there in total business fell from 9.1 to 7.3 percent. “We see a relative loss of importance,” says Börsch. The decline is particularly strong in the transportation and logistics industry, which fears chaotic conditions at the Port of Dover and other post-Brexit bottlenecks.
Among many falls, there is also a clear plus sign in trade relations between Germany and Great Britain: in contrast to exports of goods (minus twelve percent), services have increased by ten percent. Behind this is a general trend in global trade towards more digital services, according to the study.
“The question, however, is whether this can continue,” says Börsch. If there were a hard Brexit without a deal, at least the World Trade Organization rules would apply to exports of goods. However, there are no binding requirements for the service sector. The British should be much more concerned than the Germans: while services account for only 17 percent of German exports, in Britain it is almost 45 percent.
