ifo Institute / EconPol: Brexit Weighs Particularly Heavily on UK Companies
Brexit could hit UK companies particularly hard. This is the finding of a study conducted by the ifo Institute and the EconPol Europe research network. The reason is that UK companies import many intermediate products from the EU, sourcing them from few suppliers. “The current Covid-19 crisis has shown how important it is to diversify supply chains in order to mitigate the negative effects of unexpected supply shocks,” says Lisandra Flach, Director of the ifo Center for International Economics.
“Our results show how important it is to reach a trade agreement that reduces uncertainty in trade relations and thus minimizes costs for the parties involved,” Flach continues.
A look at Germany’s bilateral trade relations shows that Brexit will also have a pronounced effect on the German economy. Of goods for which there are five or fewer suppliers, the majority coming from the UK are intermediate products. Examples include special types of drive motors or chemical substances. These manufacturing inputs are not easy to replace.
This study considered product groups for which there are five or fewer suppliers. The EU obtains less than 10 percent of these goods from the UK. Conversely, however, the UK imports the majority of these product groups from the EU. “There are only a few products for which the EU is currently dependent on supplies from the UK. In principle, producers within the EU could replace these product groups. Overall, the effects of Brexit will have less of an impact on the EU27 countries than on the UK,” Flach explains.
“Germany is an important link in the complex supply chains for many industries worldwide. Regardless of the outcome of negotiations, trade costs between the UK and the EU will increase in response to Brexit,” says Feodora Teti, co-author of the study. For EU member states such as France, Italy, and especially Ireland, the issue of intermediate products could also still cause problems: when it comes to product groups with fewer suppliers, they tend to source intermediate goods from the UK rather than end products.
