Brexit less severe than expected thanks to the transition period... and Covid-19?

Direct Brexit consequences for European exporters

In order to give all stakeholders time to make arrangements and adapt to the last-minute agreement, a transition period of 6 months has been agreed by the UK for imported goods. During this period, customs checks are avoided, which should enable European exporters to limit losses (initially estimated at over EUR30 billion for 2021). 

According to Euler Hermes' latest forecasts, European exports to the UK will contract by nearly EUR10 billion in 2021. The biggest losses will be for Germany, with export losses reaching EUR2 billion, ahead of the Netherlands (-1.2 billion), France (-0.9 billion) and Belgium (-0.7 billion). A real impact, but much less than previously anticipated, representing less than 0.5% of the exports of the affected countries.

On the contrary, the Euler Hermes report puts the losses for British exporting companies at up to EUR27 billion in 2021 due to weak demand, increased red tape and the depreciation of the pound sterling (-3% forecast for 2021). At its strongest impact, this is equivalent to a 1.1 point loss in GDP growth. The top five hardest-hit sectors would be mineral and metal products, machinery and electrical equipment, transport equipment, chemicals and textiles.

How is Brexiting in times of Covid-19 different?

According to Euler Hermes' economists, the Covid-19 crisis should "lessen" the consequences of Brexit because of sanitary restrictions (expected drop in trade), the rule of origin (limitation of international trade and more local supply chains), limitation of the price increase of British imports and a direct impact on the British job market (labour shortage favouring local jobs).

Ana Boata, Head of Macroeconomic Research at Euler Hermes: