Brexit: the weak pound pushes exports (+ 6.8%), but it will not last

Despite the approach of 29 March 2019, date to which the United Kingdom will formally leave the EU, negotiations on the future of relations between Europe and the United United is at a dead end. And while future trade relations remain to be defined, Atradius has published what are the current effects of Brexit on trade flows between the UK and the rest of the EU: the weakness of the pound and the slowing of the GDP growth is weighing on demand. , while the increase in competitiveness related to the weakness of the pound (thanks to the lack of progress in the negotiations) has fostered the growth of British exports to the EU, which has reached its highest level since 2012.

However, with gradual easing currency effects, badysts do not expect this trend to continue. In this scenario, Ireland, the Netherlands and Belgium are the most exposed economies in terms of export dependence in the UK, while Germany, followed by France , are the largest volume exporters. With regard to the different sectors, the transport industry is the most vulnerable in Europe, with exports to the United Kingdom accounting for 11.3% of the sector's value added.

Food products are the second most exposed sector, followed by textiles. Not to mention that more than 10% of the value added of the transport sector in more than half of the 27 EU markets depends on exports to the UK. In turn, Irish exports to the UK account for 44.2% of value added in manufacturing and 40.3% of value added in the food sector.

Trade relations between the United Kingdom and the other 27 EU countries are of significant importance: British exports of goods to the EU account for 48% of the total, while 16% of EU exports, excluding intra-EU trade, are destined for the United Kingdom. In light of these large volumes, potential trade barriers, both in the form of duties and longer waiting periods at the border, are likely to have a negative impact on trade.

The actual magnitude of these effects will be more clearly the United Kingdom will officially come out of the common market in March 2019 (with the possibility of a transition period until December 2020). The United Kingdom will continue to be a full member of the EU until the date of its release and there are still no customs duties on trade with Europe. ; therefore, beyond the persistent uncertainty, nothing has changed yet. Real trade effects are likely to start in the medium / long term as a result of real change in relationships and the need to adapt supply chains. However, it is already possible to observe some signs in terms of bilateral trade flows, in line with the evolution of exchange rates.

International Monetary Fund data in terms of gross exports show a solid recovery in UK exports to the EU-27 from the first months of 2017 (+ 6.8%) at the growth rate the highest since February 2012. At the same time, EU exports to the UK have declined since the last months in 2016. A trend that represents a reversal of the trend observed in the post-crisis period worldwide: between 2011 and 2015, EU exports to the United Kingdom increased (+ 6.4%) faster than those from the United Kingdom to the EU (+ 1.2% )

These evolutions in terms of exchanges are in line with the evolution of exchange rates. From mid-2015, the British currency began to depreciate against the euro and lost 14% compared to June 2016, before the referendum on Brexit. In 2017, this means that UK products have become more competitive in European markets, while EU products have become relatively more expensive for the British and have lost their competitiveness in the UK market.

confirmed by the trend of GDP growth: the weakness of the pound has reduced the purchasing power of British consumers, resulting in a contraction in the demand for goods and services from abroad. At the same time, EU demand has increased as a result of the generalized economic recovery

If we look at exports from different EU countries, at the end of 2015 , export growth to the UK has begun to show a downward trend. In the case of Germany, Spain and Belgium, the contraction mainly concerns the chemical and automotive sectors, the main export sectors to the United Kingdom . While for most European markets, growth in the agri-food and metals sectors remained solid in the UK market

Against this background, Ireland is an obvious exception: in 2017, Exports to the UK grew 8% despite the weak pound sterling and strong demand from the EU, while Irish trade flows to other Member States increased only 1.4 %. Growth has been mainly supported by the chemical sector, whose supply chain between the United Kingdom and Ireland is tightly integrated and, as such, this sector is not considered to be One of the most vulnerable in terms of added value for the economy. However, the chemical sector accounts for the largest share of gross exports from Ireland to the UK and the 26.5% growth recorded in 2017 has a strong influence on total exports. The strong trend in this sector is expected to continue through continued investment and innovation

It is therefore clear that the weakness of the pound sterling and its negative influence, in terms of reducing consumers' purchasing power, GDP growth has led to a slowdown in export growth in almost all other markets in the EU. At the same time, the increased competitiveness of UK exports has been the main feature of 2017: however, it is not clear how long exchange rate problems will continue to have a significant impact.

Atradius expects export opportunities to the United Kingdom to remain stable over the 2018-2019 period, although they have improved slightly compared to the previous year. 39; last year, mainly due to the weakening of the depreciation of the pound sterling. During this period, the UK currency is expected to remain broadly stable, favoring a slowdown in UK exports to the EU. However, the effects of imported inflation will weaken, which will help improve the export prospects of other Member States, although relatively weak GDP growth may limit market opportunities. .

Trade flows with the United Kingdom will largely depend on the definition of future relations with the EU. Analysts expect only a formal draft agreement to be available by the date of official publication, while more detailed agreements will be developed during the transition period, again baduming that this period is confirmed.

for the next few years, they seem to be going down. Currently, foreign exchange and GDP movements are reflected in trade flows between the EU and the United Kingdom: the pound has fluctuated sharply following the referendum and remains exposed to information flows on the Brexit side. Therefore, an impbade or even a break in the negotiations could have adverse effects on the pound sterling, which would pose challenges for EU-27 exporters.