According to a new study from trade credit insurer Euler Hermes, UK-based companies in sectors which are highly dependent on the European market including the chemical, automotive, machinery and equipment sectors,will be hardest hit by an EU exit, if new Free Trades Areas (FTA) are not created.
Chemical companies would potentially lose £7bn in sales and would be followed by the machinery sectorwith a £3.5bn loss and the automotive industry a £3bn loss. Ana Boata, European economist at Euler Hermes said“The chemicals industry is one of the most important exporting sectors in the UK, with £55bn of goods sent abroad each year, but British companies are already under immense pressure to become more competitive against high growth markets in the US and Asia, while also battling higher R&D costs and a strong pound in recent years. With over half of the chemical industry’s exports heading to the EU, any decision to break away from continental trading partners would have knock-on effects on the supply chain and put jobs at risk. The figures emphasise the importance of negotiations to secure an FTA in the event of Britain leaving the EU.”
The core scenario suggests the UK is most likely to remain within the EU, minimising disruption to trade. However the report also highlights the impact on British companies under two ‘leave’ scenarios: first with a new FTA in place and then without an FTA. It identifies direct export losses, falling margins due to higher import and financing costs, and international divestment as the three main factors that could lead to a contraction in exports. Even with a new FTA in place, chemical companies could still see a drop of up to £2.5bn in exports, while machinery and equipment, and automotive industries would each witness a £1.1bn contraction.
Euler Hermes estimates that in the ‘worst-case scenario’ of a Brexit without an FTA, the turnover of British companies would contract by -1% per year on average, compared to a current predicted growth rate of +4% on average after 2017 if the UK remained in the EU. The report suggests that this could result in losses of up to £30bn or 8% of UK total goods exports, a gap which even when offset by trade with Commonwealth countries would take at least 10 years to fill. Under this scenario, the trade balance deficit, already at a record high level, would widen by £35bn to £180bn within 12 months of the formalisation of a UK exit from the EU.