Special Study: Foreign Trade Risks and Impact of Brexit on the German Economy

The imminent departure of Great Britain from the European Union won't affect Germany in terms of foreign trade as much as it does other economies, such as Belgium, Switzerland and the Netherlands. This is the result of a preliminary analysis in the latest Country Index for Family Enterprises, carried out by the Centre for European Economic Research (ZEW), Mannheim, on behalf of the Foundation for Family Businesses. The index shows that the pharmaceutical industry is the German sector that will be most affected by Brexit due to its high dependency on export. Several branches of the transportation industry – including aerospace and railway construction – are also considered vulnerable since they are exposed to high import risks.

According to Professor Friedrich Heinemann, head of ZEW's Research Department "Corporate Taxation and Public Finance" and co-author of the Country Index, the results show that, "the German economy is more susceptible to foreign trade shocks than any other large economy in Europe" due to its high degree of openness. "These risks are, however, diminished thanks to a great diversity of trading partners and sectors." Heinemann is convinced that Britain's departure will most certainly have far-reaching effects for the EU as a whole: "Britain's exit could make the EU more prone to give in to protectionist tendencies." Overall, the study shows that larger European countries such as Germany are less affected by Brexit than medium- and small-sized economies.

The Country Index is based on a comprehensive set of indicators which are informative on how individual locations are attractive for an exemplary family business in the manufacturing industry with an annual turnover of 210 billion euros. An extensive analytical part is devoted to the effective tax burden of that exemplary family business at the different locations. This analysis makes use of the ZEW European Tax Analyzer, a dynamic tax simulation tool. The countries covered in the index are Belgium, Denmark, Germany, Finland, France, Great Britain, Ireland, Italy, Luxembourg, the Netherlands, Austria, Poland, Spain, Sweden, Switzerland, Slovakia, the Czech Republic and the USA.<o:p></o:p>