Brexit “Whip” will make a Dent in German Economy
The experts already for a long period assume that the consequences of Brexit will be noticeable in many places globally, and we understand that everybody in the European Union will face both consequences – political and economical. I agree to the view expressed by British expert and Professor Iain Begg that the EU should become more flexible, but at present there is no flexibility. Especially, taking into account the processes that take place in Germany – this makes it difficult for the EU to change the position. Let’s not forget that following the enlargement of the EU that comprises now 28 Member States it is considerably more difficult to achieve an agreement than 40 years ago, when there were only six Member States.
We cannot close our eyes and pretend that Brexit does not affect us. The crisis of German economy that is discussed now so widely might spread all over Europe after the impact of Brexit as the recession risk. The Central Bank of Germany also warns about German recession concern, because, under the influence of Brexit, there might be drastic decrease of the growth of automobile manufacturing industry. Having viewed different data, we may draw a conclusion that the fourth largest economy of the world faces recession. These are very harsh words, but it is a fact – German GDP during the second quarter decreased by 0.1 per cent.
In Germany it is possible to feel the decrease of manufacturing volume and slowing down of export, creating a chain reaction in the influence of other European countries, the import or the total demand from the main trade partners of Germany also decreases, for example, in France that the last year exported to Germany 70 billion dollars, in Italy – 59 billion dollars or in Spain – 34 billion dollars. There is also a risk that the companies of these countries will sell Germany less automobiles, parts of vehicles, and smaller countries this might be problematic, taking into consideration that Germany is their most important trade partner. For example, in 2017 one third of the export of the Czech Republic was exported to Germany, out of which 6 billion dollars constituted the trade of vehicle parts. It equals to 3.2% (all export) and 0.4% (only vehicle parts) of the economy of the Czech Republic.
German Bundesbank, emphasizing the decline of export, finds that Brexit and trade war between US and China are among the main factors that caused the decline of GDP by 0.1%, this, probably, will cause also similar decline in September.
German companies since January till May this year exported to Great Britain goods for approximately 35 billion euro – in comparison to the previous year, the decline constituted 2.3%. Meanwhile, the import from Great Britain decreased even more drastically – by 6.1% down to 15 billion euro. The main reason – continuous uncertainty in relation to the withdrawal of Great Britain from the EU and future economic relations.
Erik Schweitzer, President of the Association of German Chambers of Industry and Commerce (DIHK), already finds that Brexit has become a threat to German economy. According to him: “In total, 70% of German companies engaged in business activities in Great Britain anticipated that trade will have decline this year – in 2019. Meanwhile every eighth company operating there would like to redirect their investments to other markets – mostly to the countries of the EU internal market.”
The International Monetary Fund already reduced global economical growth forecast for this year down to 3.1%, warning about the negative impact of Brexit on the global economy in case of the withdrawal of Great Britain. The negative impact of Brexit on economy may be limited by smart and well-considered taxation policy in both Great Britain and Germany. However, according to the data of Halle Institute for Economic Research we can already see that Brexit “whip” will hit Germany hardest.
Craig Erlam, Senior Market Analyst at OANDA, said that, irrespective of recent forecast, the economic decline hit Germany more than the United Kingdom. He mentioned that: “It is very difficult not to relate the economical issues of both countries, because they both concluded an agreement in the first quarter and are obviously not protected against the result of Brexit”.
The United Kingdom is the third largest export market in Europe for Germany and the fifth globally, and its total amount of goods in 2018 was 75 billion British pounds. I have no doubt that Germany will do its utmost that after Brexit Great Britain and the EU would have close partnership in future regarding many issues of cooperation that might be a guarantee for the survival of small countries.
According to the opinion of Germany, the final result of Brexit may be on 31 October. Therefore, before providing a forecast on the economic stability of the EU Member States, let’s initially wait for the nearest results at the end of October.