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Italy Braces Itself for Impending Post-Brexit Economic Aftershocks

With the UK one of Italy's major trading partners, negatives effects are now anticipated for both countries.

Photo: Post Brexit Britain: A missing piece of the Italian economy. (Shutterstock.com)
Post Brexit Britain: A missing piece of the Italian economy.
Photo: Post Brexit Britain: A missing piece of the Italian economy. (Shutterstock.com)
Post Brexit Britain: A missing piece of the Italian economy.

With the true impact of the UK's decision to quit the EU yet to hit home in many neighbour states and fellow members of the European Community, Italy is girding itself against the likely repercussions. Home to some 60 million people, the country is anticipating both economic and political consequences as a result of the UK's impending departure.

At present, the UK is Italy's fourth largest market, accounting for some 5.4% of all its exports. The UK also currently accounts for 2.9% of Italy's imports, ranking it at number 10 among the country's trading partners.

In terms of sectors, the UK and Italy have co-operated closely in the defence and space research fields, two areas that might well be adversely affected by the severing of the common EU link. The education and migrant worker sectors are also expected to suffer. There are currently 600,000 Italian citizens working or studying in the UK, a number almost entirely bolstered by the free movement of individuals guaranteed among EU member states.

In terms of direct economic aftershocks, forecasts from Intesa Sanpaolo – Italy's largest banking group – have indicated that the Brexit move could cost Italy up to €3 billion (US$3.3 billion) in terms of lost or delayed exports. This will primarily be on account of an anticipated slowdown in the UK economy and a likely fall in the value of sterling, with the latter already in evidence.

These immediate impacts aside, greater long-term damage is expected to accrue from the imposition of import tariffs once the UK completes its exit from the EU. Even should such tariffs be fixed as low as 5% – a similar figure imposed on trade with other non-EU nations – this will result in a substantial increase in the cost of Made-in-Italy goods for UK consumers, a problem that will only be exacerbated by the weakened state of the pound.

This is expected to have a substantial knock-on effect across a wide variety of Italian export sectors, including food, wine, fashion, furniture and machinery. The impact will be all the heavier as the UK has previously proved itself a safe haven for Italian exports, even during the post-2008 recessionary period.

For the UK, there is another possible downside. At present, the country is a transshipment point for a number of Italian products destined for markets further afield, notably the US. It is likely that it will be superseded in this role by continuing EU member states, with Ireland the prime candidate.

There are also possible implications for exports to China. To date, the UK has taken a more open approach to trade with the mainland than a number of other EU member states. This could see it established as a future conduit for exports to China, although there are a vast number of bilateral agreements that need to be negotiated before such a scenario becomes a reality.

Alessio Pulsinelli, Milan Office

Content provided by Picture: HKTDC Research
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