Brexit uncertainties hit German economic performance

The prospect of a Brexit is already having an economic impact beyond the United Kingdom, as German commentators are citing the likely split as a contributory factor to the strain on the country's export-heavy economy.

The changing face of the automobile industry, one of Germany's economic mainstays, together with wider global trade tensions are also taking their toll. But it is German exports where most of the pain is being felt, with quarter-on-quarter sales of goods to the UK falling by 21 percent in the three months ending in June.

"German exports to the UK are already 12 percent lower than they would have been if the trend that prevailed before the June 2016 Brexit vote had continued," Holger Schmieding, chief economist at Berenberg in London, told The Financial Times.

Almost half of Germany's GDP - 47 percent - is generated by exports, compared to 30 percent in the UK and France. In the export market, the UK is Germany's fifth largest customer, behind the US, France, China and the Netherlands. In 2018, sales from Germany to the UK totaled $90 billion.

Figures for the second quarter of 2019 have also been hit because of the UK's stockpiling scare in the run-up to the initial Brexit date of March 29, which saw businesses buy up additional stock ahead of the exit from the European Union that never happened.

The stockpiling contributed to a 10 percent increase on German sales compared to the same period 12 months earlier, but the hangover in the second quarter was that sales slumped as companies began to use up all that additional stock.

"The UK's stockpiling drive ahead of the March Brexit deadline was a key support to German exports in Q1 2019," said Oliver Rakau, economist at Oxford Economics.

Since taking over as prime minister in July, Boris Johnson has promised that the UK's departure date from the EU will be Oct 31, "do or die, come what may". But Tuesday night's dramatic events in Parliament that saw MPs take control of the Brexit legislative agenda from the government means that the split from the EU bloc could face another delay into next year, causing more uncertainty for British businesses.

UK companies may be less likely to make purchases or, alternatively, more likely to stockpile again, which would be a short-term gain but a long-term pain.

The confusion also affects British employees of German companies. Henrik Follmann is the chief executive of chemical company Follmann Chemie, which employs more than 100 people at two sites in the UK.

"People are scared for their jobs and scared for their future," he said. "All I can say to them is 'I believe in you'. The UK paper and packaging industry that we supply is thinking about moving facilities out of the UK - that is the big uncertainty."

And, by definition, in as unified an economy as Europe, when the biggest player, Germany, suffers, all feel the pain. Of the 19 countries in the eurozone, 40 percent of economic output comes from two members, Italy and Germany.

Italy's latest political infighting could make it a less attractive investment place, and Germany's problems are well known. Brexit - whether or not it even happens, and when - just piles on yet more pressure at the worst possible time.

julian@mail.chinadailyuk.com

(China Daily 09/05/2019 page11)