Brexit and its Economic Consequences for the German State of Hesse

In the course of Brexit, Germany’s real GDP will fall compared to the current status quo. The average effect for Germany as a whole, however, masks significant heterogeneities between different sub-national entities such as the German states. The German state of Hesse faces a special situation, as Frankfurt am Main lies at the heart of the German financial sector. In sum, the German state of Hesse and the important metropolitan region of Frankfurt-Rhine-Main should be less heavily impacted by Britain’s exit from the European Union than Germany as a whole. In the case of a “hard Brexit”, Hessen’s price-adjusted gross domestic product (GDP) will be -0.17% lower than in the base scenario (versus Germany: -0.23%). The effects on the metropolitan region will be similar to that on Hessen as a whole. If, on the other hand, a more ambitious free trade agreement were to be reached (“soft Brexit”), the effects on Hessen and its metropolitan region would be -0.08% compared to the baseline (Germany: -0.10%). Hessen stands to be less strongly affected thanks to structural economic differences in its economy. There are two main reasons for this: firstly, the branch that stands to be the most strongly affected by Brexit, namely manufacturing, accounts for a smaller share of added value in Hessen than in Germany as a whole. Secondly, financial, insurance and corporate services provides are traditionally more present in Hessen than in Germany on average. These are the three economic sectors that may even stand to gain from Brexit.