Far-reaching implications of Brexit

The UK’s decision to leave the European Union (so-called “Brexit”) by a narrow majority of 52% to 48% in a referendum on 23 June is already being felt in currency markets and stock exchanges around the world. The short-term economic effects are already evident – a slowdown in growth, certainly in the UK, which might even dip back into recession, and also in the wider EU economy.

The UK plays an important role in the EU. Whether it is the share in total population, total gross domestic product (GDP) or foreign direct investment (FDI), Britain ranks in the top three countries, and Brexit has significant implications for the whole continent. The UK is also the EU’s largest importer of timber from tropical countries by a significant margin.

In economic terms, the overwhelming issue is uncertainty. There are already signs that this is leading UK businesses and external investors to delay decisions until there is greater clarity and there is some settling in volatility of currencies and share prices.

For timber importers in the UK, the weakening of the Pound Sterling to a 30-year low against the US dollar, and a 30% fall in the share value of the largest UK house builders after the referendum are certain to result in a big decrease in buying.

Whether this is short- or long-term depends heavily on the progress of the challenging political processes now underway and the extent to which the wider economy is able to ride the storm.

If all timber-based products are included (primary raw materials, secondary processed products and tertiary products like furniture), in 2015 the UK accounted for around 25% of the total value imported into the EU from tropical countries. This compares to 15% imported into France, the second largest EU market for tropical timber.

UK import value of tropical timber products increased by 32% from Euro 720 million in 2011 to Euro 960 million in 2015. This is in contrast to other leading EU markets for which, during the same period, tropical timber imports were either flat (Belgium) or declining.

A large part of the recent growth in UK imports of timber products from these countries has been in the form of furniture from Vietnam, Indonesia and Malaysia  – a trade now likely to slow in the short to medium term.

The UK has been a leading player amongst EU countries to develop measures such as the EU Timber Regulations, provide political and technical support for FLEGT and promote responsible timber procurement policies.

What is certain is that the starting positions for negotiation are a long way apart and it will be extremely challenging to reach a mutually acceptable agreement. Many EU officials and member states are calling for the EU to impose tough conditions on UK trade with the EU to discourage leave campaigns in other EU member states. – ITTO

Source: www.woodnews.in