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Carmakers and pharma hit by slowdown in UK imports from Europe

Electric car production at Volkswagen's Zwickau plant in Germany - Getty
Electric car production at Volkswagen's Zwickau plant in Germany - Getty

Europe’s carmakers and pharmaceutical firms have suffered a slowdown in trade with the UK since the Brexit vote, according to the eurozone’s central bank.

Researchers at the European Central Bank found that British imports of vehicles and pharmaceutical products have fallen “from stable double-digit positive growth to double-digit negative growth”.

They added that EU countries reliant on these sectors, such as Germany, Ireland, Denmark, Slovenia and Eastern Europe, were most likely to be hit by Brexit-related trade disruptions.

The research covers “the period between the referendum and the start of the coronavirus pandemic”, so would not include hold-ups at ports experienced at the start of this year after the Brexit transition period ended.

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None the less, the ECB’s analysts also found that Brexit is “already having a strong impact” on the bloc’s most vulnerable sectors, causing a “sizable drag” on Europe’s exports.

The UK has been leapfrogged by the US as the biggest single destination for EU goods in recent years after the “notable slowdown” in the growth of imports arriving from Europe since the referendum in 2016.

The research suggests that UK-EU trade was already struggling before the new Brexit arrangements were brought in this year.

Businesses reported major border disruption in the first quarter as they adapted to the new rules but trade has improved in recent months. Covid-19 has also had a major impact on UK trade as demand is sapped by lockdowns.

The ECB pinned the broader slowdown in recent years partly on sterling’s plunge pushing up the cost of imports for UK firms, as well a slump in business investment. It said UK exports growth to the eurozone was supported by the pound’s weakness.

“Ultimately the impact on euro area foreign demand and broader growth will depend on the extent to which the UK can move away from euro area suppliers over the longer term,” said Valerie Jarvis at the ECB.

“Some indications of weakening demand for imported goods from EU sources have been evident since the referendum.”

UK imports were 16pc of foreign demand for eurozone goods at the peak in 2006 but slipped back to 14pc between 2016 and 2018.

Chip shortage piles more pressure on carmakers

A shortage of vehicles is on the horizon with a shortage of processors forcing carmakers to initiate production pauses - Jeff Roberson /AP
A shortage of vehicles is on the horizon with a shortage of processors forcing carmakers to initiate production pauses - Jeff Roberson /AP

It comes as the automotive industry faces a 2.5 million car shortfall thanks to a chip drought that has stalled production lines across the world.

The cut in production comes as car companies struggle to find semiconductors after a surge in demand for consumer electronics and games consoles left them at the back of the queue for high-tech parts.

German chip company Infineon said it expected production to still be over a million short in the second quarter of the year.

Helmut Gassel, the company’s chief marketing officer, told analysts: “There are roughly 1.5 million cars not being built in the first quarter, and 1 million vehicles not being built in the second. That, we think, is the best estimate that currently exists.”

Carmakers including Ford, GM, Audi and BMW have been forced to shut production lines for days at a time to deal with a lack of chips. On Monday, Ford said it would halt production in Germany for several weeks. Many modern cars feature dozens of semiconductors, but supply chain shocks have left carmakers scrambling to find parts.

During the first wave of coronavirus, car companies cut back on orders for chips as sales slumped.

This has since left them lagging behind as orders picked back up again faster than expected. They have also found themselves behind orders for chips to support surging demand for consumer gadgets such as the new Xbox and Playstation consoles.

On Monday Pat Gelsinger, chief executive of Intel, said he expected the chip shortages to drag on for “a couple of years”. The US company is investing $20bn in new semiconductor capacity, it announced in April.