Eurozone chemicals output will falter under no-deal Brexit - Oxford Economics

Source: ICIS News

2019/02/14

LONDON (ICIS)--The eurozone's chemicals and pharmaceutical industry's output would fall by 0.3 percentage points below initial forecasts by the end of 2020 in the case of a no-deal Brexit, according to a study by analysts at Oxford Economics.

A no-deal Brexit would lead to increased trade frictions between the UK and the eurozone, reducing demand from the UK for eurozone-manufactured chemical products.

"[The fall in demand for chemicals would occur] either via lower direct sales, or supply chain linkages … as demand from downstream sectors, such as automotive, falters,” said to ICIS Oxford Economics' senior economist Stephen Foreman.

“Ireland would experience a larger 0.7 percentage point hit in the level of chemical and pharmaceutical output by the end of 2020, relative to our baseline forecast.

“This is because Irish chemicals export as as a share of output is more closely integrated in the UK market, relative to the eurozone as a bloc.”


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Overall, while Oxford Economics expects a disorderly Brexit would shave just 0.3 percentage points from the level of eurozone manufacturing relative to baseline by the end of 2020, some industries will face considerable strain.

AUTOMOBILE HIT
The automotive industry is set to bear the brunt of the disruption in the case of a no-deal Brexit, especially in Germany, with one in three new vehicles sold in the UK coming from Europe’s largest economy.

According to the report, a rise in tariffs and customs checks will be “particularly problematic for low-margin, high-volume automakers such as Volkswagen”, while tariffs on UK-sourced parts would further increase eurozone production costs.

Similarly, delays or disruptions at the border from customs control would threaten automotive firms ‘just-in-time’ business models.

Output in the German automotive industry is expected to fall 0.6 percentage points below the baseline by the end of 2020.

Oxford Economics did say, however, that the negative impact of a no-deal Brexit could be partly offset by the relocation of automotive supply chains to the eurozone.

The textiles, leather and footwear industry is set to see costs rise by 15 percentage points or more, as tariffs, custom checks, and a weaker pound put upward pressure on the cost of exporting goods to the UK.

"Time is running out for the UK Parliament to approve the draft Brexit Withdrawal Agreement reached between the UK and EU in November ... Ultimately, we expect MPs [members of Parliament] will approve something close to the deal currently on the table," said Foreman in a research note published earlier on Thursday.

He added that Oxford Economics' currently puts the odds of a no-deal Brexit at 35%.

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