EU COMPANIES WARNED OF 700,000 JOB LOSSES IN NO-DEAL BREXIT

 Financial Times 27 September 2020 - by Martin Arnold in Frankfurt

© Provided by The Financial Times

More than 700,000 jobs would be at risk for EU companies exporting to Britain if the UK and Brussels fail to agree a trade deal this year, according to a leading German economic research institute.

In total, including companies outside the EU that export to the UK, there would be 1m potential job losses in a no-deal Brexit scenario, according to an unpublished report by the Halle Institute for Economic Research seen by the Financial Times.

The research, updating an initial report from February 2019, is still being peer reviewed and is due to be published in the coming weeks.

Britain's chief Brexit negotiator David Frost (C) arrives to meet his EU counterpart for Brexit negotiations at the EU headquarters in Brussels on September 17, 2020. - The chief negotiators for EU-UK trade talks meet in Brussels on September 17 to try to avoid a breakdown after London said it would backtrack on Brexit divorce terms, with fears rising of a damaging cliff-edge "no deal" at the end of this year. (Photo by JOHN THYS / AFP) (Photo by JOHN THYS/AFP via Getty Images)

The scale of the job losses estimated by the research underline how much is at stake for both sides in the negotiations between London and Brussels, which are showing few signs of progress with time running out to sign a trade deal.

While the UK left the EU at the end of January 2020, it remains in the bloc’s customs union and single market until the end of this year. Unless a trade deal is agreed, customs checks and tariffs are expected to be introduced on trade between the EU and the UK next year.

Germany would suffer the biggest hit, the research said, predicting that in a no-deal Brexit Europe’s largest economy would have more than 176,000 potential job losses at companies exporting to the UK and their suppliers. France could lose over 80,000 jobs, Poland 78,000 and Italy 72,000.

Outside the EU, China would be most affected with almost 91,000 jobs at stake. In the UK, almost 22,000 jobs could go at businesses supplying EU companies exporting to Britain.

Smaller countries would suffer a bigger hit in relation to the size of their labour market, it said, with Ireland forecast to lose over 35,000 jobs — almost 2 per cent of its workforce. Slovakia, the Czech Republic, Belgium and Malta could lose between 0.5 and 3.4 per cent of their total jobs.

Oliver Holtemöller, vice-president of the Halle Institute, told the FT that the impact from lower imports to the UK would be offset “only to a very limited extent and with some delay” by the opportunity created by reduced exports from Britain to the EU.

“It is possible that some firms take over some intra-EU market share of UK firms,” said Mr Holtemöller, who is also an economics professor at the Martin Luther University Halle-Wittenberg. “However, this is very difficult to quantify ex-ante.”

© Thomson Reuters A man works at a construction site near Sevington Church for a lorry and freight park near the M20 motorway, as government's preparations for the Brexit post-transition period continue, in Ashford, Kent, Britain, September 24, 2020. REUTERS/Toby Melville

He said the full number of estimated job losses may not materialise as “firms do also have other options to react”.  

The UK imported €319bn of goods and services from the EU last year — more than from all other countries combined — although its share of total exports from the bloc has fallen from 17 per cent to 15 per cent since the 2016 Brexit referendum. 

The Halle Institute assumed trade between the UK and EU would follow World Trade Organization rules after Brexit. This means UK imports of EU cars and car parts would have a 10 per cent tariff, while agricultural tariffs would be higher. Non-tariff costs, such as customs delays and paperwork, would also rise sharply for companies importing into the UK.

The flow of EU goods and services into Britain would fall 41 per cent if there was a no-deal Brexit, it said, which would wipe 0.25 percentage points off the gross output of the 27-country bloc.

© ASSOCIATED PRESS Chief EU negotiator Michel Barnier arrives at St Pancras station, in London, Wednesday, Sept. 23, 2020. Michel Barnier is due to hold talks with his British counterpart David Frost in London Wednesday ahead of a ninth formal round of negotiations next week. (AP Photo/Alberto Pezzali)

It predicted the car industry would be the hardest hit, affecting exporters in Germany, Spain, the Czech Republic, Belgium and Slovakia in particular. But agricultural exporters in Bulgaria would also be disrupted, as would French and Dutch wholesale trade exporters.

The Halle Institute stressed that it had only examined the “partial effects of a negative trade shock”. It added: “We do not consider macroeconomic general equilibrium effects. We do not aim to estimate the total effects of Brexit on employment in the UK or in any other country.”

The research backs up the findings of a London School of Economics report published last week, which said 40 per cent of agricultural and food products consumed by UK households were imported from the EU. The report, sponsored by Denmark's Arla Foods, predicted this would fall 63 per cent in a no-deal Brexit.

“Under a no-deal scenario a number of product lines including yoghurt, buttermilk, dairy spreads, milk and cream are likely to cease being imported into the UK from the EU,” the LSE report said, predicting a 26.5 per cent average price increase for branded and speciality food products imported to the UK from the EU under a no-deal Brexit.