The impact of the UK’s exit from the European Union on the country’s $30bn machinery production market will depend largely on whether it makes a “soft” or a “contentious” exit from the EU, according to a new analysis from IHS Markit.

This year, more than 37% of the UK’s machinery exports will go to the EU. Thus almost any EU response to Brexit will affect machinery production and the UK’s machinery exports adversely.

Even before Brexit, IHS Markit was predicting that the UK’s machinery production sector would contract by 1.6% during 2016, before reviving to deliver an average growth of 3% in the period to 2020. The sector had been in decline, falling 11.2% year-on-year, mainly as a result of its exposure to commodity exporters in South America and elsewhere.

The analyst forecasts that Brexit will reduce global GDP growth in 2017, with the UK being the hardest hit, followed by Europe (including Spain, Germany, France and Poland) – and even economies as far away as Singapore and Brazil.

In a “contentious” exit, the EU would seek to make trade rules and regulations that would result in fewer machinery imports from the UK. It could even re-route entire supply chains out of the UK. In this scenario, the EU would strictly enforce the Common Customs Tariff that applies to goods crossing its external borders.

Currently, says IHS Markit, EU importers are committed to existing manufacturing sites in the UK, and many have said there no immediate changes are needed. However, others have stated that supply conditions will have to be renegotiated.

A “soft” exit would require renegotiating of terms of trade, which could result in some trade friction, but would be on amicable terms. A tariff-free trade pact with the EU could, in fact, benefit some manufacturers in the UK and provide long-term potential benefits, suggests IHS Markit senior data analyst, Rolando Campos.

Read the full article here from Drive & Control