Brexit worries hit Germany's export sector

Manufacturing suffers as global woes and car-making realignment hit home

The prospect of a potential Brexit is having an impact beyond the United Kingdom before it has even happened, German commentators have admitted, as a contributory factor toward strain on the country's export-heavy economy.

The changing face of the automobile industry, one of Germany's economic mainstays, and wider global trade tensions are also taking their toll, but it is exports where most pain is being felt, with quarter-on-quarter sales of goods to the UK falling by 21 percent in the three months to June.

"German exports to the UK are already 12 percent lower than they would have been if the trend that prevailed before the June 2016 Brexit vote had continued," Holger Schmieding, chief economist at Berenberg in London, told the Financial Times.

Almost half of Germany's GDP — 47 percent — is export, compared to 30 percent in the UK and France. The UK is Germany's fifth-largest export customer, behind the United States, France, China and the Netherlands.

In 2018, sales from Germany to the UK totaled $90 billion. Figures for the second quarter of 2019 were hit by the stockpiling scare in the run-up to the initial Brexit date of March 29, which saw businesses buy up additional stock ahead of the departure that never materialized.

This contributed to a 10 percent increase on sales compared to the same period 12 months earlier, but the hangover in the second quarter as sales slumped when companies began to use up that stock.

"The UK's stockpiling drive ahead of the March Brexit deadline was a key support to German exports in Q1 2019," said Oliver Rakau, economist at Oxford Economics.

Continued uncertainty over what happens next in the UK makes other export markets an even bigger priority for Germany, so trade is likely to be high on the agenda when Chancellor Angela Merkel visits China later this week.

Since taking over as prime minister in July, Boris Johnson has promised that the UK's departure date will be Oct 31, "do or die, come what may".  But Tuesday's dramatic events in Parliament that saw MPs take control of the Brexit legislative agenda from the government means that it could face another delay into next year, causing yet more uncertainty. This might make businesses less likely to spend, or alternatively more likely to stockpile again.

The confusion also affects British employees of German companies. Henrik Follmann is the chief executive of chemical company Follmann Chemie, which employs more than 100 people at two sites in the UK.

"People are scared for their jobs and scared for their future," he said. "All I can say to them is 'I believe in you'. The UK paper and packaging industry that we supply is thinking about moving facilities out of the UK — that is the big uncertainty."

And by definition, in as integrated an economy as Europe's, when the biggest player, Germany, suffers, all feel the pain. Of the 19 countries in the Eurozone, 40 percent of economic output comes from two members, Italy and Germany.

Italy's latest political infighting  makes it a less attractive investment place, and Germany's problems are well known. Brexit — whether or not it even happens, and when —  just piles on yet more pressure at the worst possible time.