The German economy need no longer fear a no-deal Brexit. Short-term losses would have to be absorbed—and the costs of continued uncertainty are unlikely to be much lower. This is also good news for the European economy overall.
Germany annually exports goods worth more than 80 billion euros to the United Kingdom. But in the case of a no-deal Brexit, value creation and employment in the individual sectors would be affected by a decline in exports quite differently to the way suggested by export figures alone. Not all exports have the same amount of domestic added value: in vehicle construction and in a few other industrial sectors, the added value of production in Germany is quite low.
Scenario shows manageable impacts
In fact, the pharmaceutical industry would have the most to lose, followed by the electronics industry, the car industry follows only in third place. For example, in the case of a no-deal Brexit, exports of major industries would drop by 20 percent in the short-term, and the value-added losses in several sectors would amount to around 1 percent.
“That wouldn’t be great, but manageable. The current uncertainty already causes costs that, if this condition continues, are not likely to be much lower than in case of a no-deal Brexit," says Prognos Chief Economist, Michael Böhmer.
How was it calculated?
World Input-Output Tables (WIOD) map trade links between 56 industries and 43 countries and visualise value-added flows between sectors and countries. They allow the undistorted analysis of the real economic importance of trade between Germany and the United Kingdom.