Brexit Impact: Bad European chemical markets

Brexit Impact: Bad for European chemical markets

9:41 AM, 1st July 2016
Brexit Impact: Bad for European chemical markets
Britain voted for a British exit (Brexit) from the European Union.

FRANKFURT, GERMANY: In a historic decision, the people of Britain voted for a British exit (Brexit) from the European Union (EU) on 23 June. The outcome has prompted jubilant celebrations among Eurosceptics around Europe and sent shockwaves through the global economy.

The chemical industry experts see a negative impact of this move as Great Britain is an important trading partner and one of the biggest markets in the EU for the chemical and pharmaceutical industry.

“Brexit” as it’s more commonly known is a fatal signal and has negative effects on economic development in Europe: a drop in chemical exports and direct investments. The US commercial relationship with the United Kingdom (UK) and European Union (EU) combined represents about 40 percent of the global economy, and chemical trade between the EU and UK is enormous.

According to the German chemical industry association Verband der Chemischen Industrie (VCI), last year the industry sold goods worth €12.9 billion to Britain (7.3 percent of all exports). Specialty chemicals and pharmaceuticals accounted for the largest share. During the same period, German chemical companies’ imported goods to the value of €5.6 billion from the island. These mainly included pharmaceutical inputs and petrochemicals.

Great Britain is also immensely important as a production and distribution location. At present, 63 subsidiaries of German chemical companies are active in Britain. Overall, they employ around 6,000 staff and realize sales of €4.1 billion. The stock of direct investments on the island totals roughly €1.6 billion. British investors have invested well over €2 billion in the German chemical industry.

“At a time when the economy in Europe is undergoing a timid recovery, a withdrawal from the European Union would be a bad signal for the further economic development,” said Marijn Dekkers, president of VCI.

As indicated by Society of Chemical Manufacturers and Affiliates (SOCMA): The most immediate effect of the “Brexit” vote is that it dooms any chance for finalizing the Transatlantic Trade and Investment Partnership (TTIP) this year, a trade agreement that would greatly benefit the specialty chemical manufacturing sector by reducing billions of dollars in tariffs and increasing regulatory coherence between the EU and US agencies.

“Due to the shock and surprise of the UK’s vote, there is tremendous sensationalism of this entire discussion. It is impossible to believe that saner heads will not prevail before the exit discussions and negotiations are finalized sometime over the next couple of years,” noted Jim DeLisi, president, Fanwood Chemical and chair, SOCMA International Trade Committee. “It is likely the UK will end up with a trade deal with the EU that is similar to what Norway and Switzerland have negotiated, allowing the free movement of goods.” 

From the VCI's point of view, the most serious negative economic effects of a Brexit would have to be borne by the British themselves. But a withdrawal from the European Union would bring losses in gross domestic product and falling exports also for the remaining EU member states - and especially for German companies.

Cross-border investments would be impaired too, said the VCI. The likely devaluation of the British pound and the uncertainty that comes with exit negotiations would give reasons for German investors to reconsider their commitment to the location Great Britain and to possibly withdraw capital. The distortions of financial markets triggered by a Brexit would be difficult to quantify.

© Worldofchemicals News

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