A Brexit would hit British companies the hardest. This is the conclusion drawn by economists at the leading credit insurer, Euler Hermes, in their study entitled 'Brexit me if you can'. They believe that exports worth some 30 billion (bn) British pounds (GBP) would be in jeopardy if the worst-case scenario were to materialize and the UK were, in fact, to leave the European Union (EU) without concluding a Free Trade Agreement with its European neighbors at the same time. This figure corresponds to 8 percent of the UK's total goods exports. This would have a direct impact on turnover in the UK's corporate sector. The country would also be confronted with the prospect of capital flight en masse, with Euler Hermes predicting investment losses to the tune of up to £210bn in the first four years following the referendum. UK economic growth is already tipped to slow to 2.1 percent this year, and to slide as low at 1.9 percent next year, amid the considerable uncertainty surrounding the referendum.

The UK would need at least 10 years to compensate for the exports lost
 'The turnover of British companies would contract by around 1 percent per year on average in the event of a Brexit', said Ludovic Subran, Chief Economist for the Euler Hermes Group. 'If, on the other hand, the country opts to remain in the EU - which we currently expect it to - turnover would grow at an average rate of 4 percent a year from 2017 onwards. This means that for some companies, a Brexit would be the death knell. What is more, the UK would need at least ten years to close the export gap left by a Brexit - even if some of the gap could be closed by trade with the Commonwealth states.'

London would lose its supremacy as a financial center, with a Brexit likely to leave its mark on the financial services industry
 A Brexit would hit the British financial services industry particularly hard, with London likely to lose its dominant position among Europe's leading trading venues. British banks would no longer be able to benefit from the favorable financing conditions offered by the European Central Bank (ECB) and the Bank of England would have to hike interest rates to combat inflation. As far as the corporate sector is concerned, higher financing costs would have a direct impact on their profit margins.

British automotive, engineering, chemicals, food and energy industries would be the hardest hit
 But a Brexit would also deal a hefty blow to UK's automotive, engineering, chemicals, food and energy industries, all of which are heavily reliant on the European single market. Euler Hermes estimates that 60 percent of the lost exports would be attributable to Germany, the Netherlands, France and Ireland.

Customs duties and other trade barriers likely to be imposed
 'But an exit from the EU wouldn't just hit British exports. Imports would be affected, too,' explained Subran. 'The depreciation of the pound and new customs duties imposed either by the EU or by the UK in an attempt to boost local production and accelerate the reindustrialization process could push goods imports up. Other trade barriers could include new product standards relating to packaging, labeling or hygiene regulations. This could become a vicious circle for some sectors that rely heavily on the European market. The British automotive industry's supply chain, for example, is completely dependent on Germany, France, Spain and Italy. What is more, without European demand behind them, foreign automotive manufacturers would no longer have any incentive to keep their manufacturing activities in the UK.'

Allianz SE issued this content on 11 February 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 11 February 2016 12:57:13 UTC

Original Document: https://www.allianz.com/en/press/news/studies/160211_brexit-a-black-hole-for-the-uk-economy/