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Brexit 'doesn't pose big risk' to German economy

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Brexit 'doesn't pose big risk' to German economy
Car manufacturing at Volkswagen. Photo: DPA
13:31 CEST+02:00
While the financial markets have been thrown into disarray by the Brexit vote, leading experts on the German labour market say the country is easily strong enough to cope.

When the news came through last Friday that British voters had chosen to leave the EU, it left the financial markets stunned.

Frankfurt's DAX dropped ten percent in its biggest fall since the financial crash of 2008.

But Enzo Weber, an expert at the Nuremberg Institute for Employment Research (IAB), wasn't panicking.

He doesn't believe that the Brexit will have a huge impact on the German job market, provided that Britain is treated as a respected trade partner, like the USA, and that the EU doesn't fall into a crisis of confidence among its remaining citizens.

The British vote was “no trivial matter” Weber concedes - the UK is Germany's fifth most important trade partner, with yearly trade reaching €127.6 billion - but the German economy as a whole “can sufficiently cope.”

“Exports to the UK are about seven percent of total German exports. Even if ten percent of this seven percent were to drop away, that is a quantity that the economy as a whole could cope with.”

The UK is a particularly important trading partner for the car and machine industries.

In 2015, cars and car parts worth €29.1 billion, and machines worth €8.8 billion, were sold to Britain, according to figures from the Federal Statistics Office.

Some companies in these sectors will feel the pinch - and “a few feel it hard” - but the job market as a whole is robust enough to cope, the expert argues.

'German car makers always find new markets'

Stefan Sell, economics professor at Koblenz University, agrees that the short and midterm impact will be limited.

“If investment decisions will be delayed because of the uncertain environment, that's much more likely to hit the British job market,” he surmises.

A drop-off in sales in a certain market “doesn't generally have a one-to-one impact on the German job market,” he says.

The German car industry has always found new markets in Asia or America to make up for loss of revenue in traditional markets, according to Sell.

These positive prognoses come as the Federal Labour Office announced on Thursday that unemployment remained at its lowest level since German reunification in 1990.

The unemployment rate - which measures the jobless total against the working population as a whole - stood at 6.1 percent in June, unchanged from May.

In numerical terms, the number of people registered as unemployed in Germany declined by 6,000 to 2.69 million.

The IAB believes that “the positive employment trend" will continue to show itself in the second half of the year.

Industry thriving

Despite the uncertainty that surrounded the EU economy in the build-up to the Brexit referendum, German industry has been thriving in recent months.

In April machine-builders brought large contracts to Germany, while the electrical industry took in considerably more international orders than in 2015.

The mood in the German middle-sized businesses was good in May, according to research by KfW banking group.

A key factor is that consumer demand within Germany is currently the major driver of the country's economic growth.

The Bundesbank (Federal Bank) also foresees only a minimal impact on the German economy this year. Just like the OECD, the Bundesbank believes Germany will see growth of 1.7 percent throughout the year.

With AFP

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