Will the Brexit transition period be enough to buy the UK time as it carves out its future relationship with the European Union? If you ask trade credit insurer Atradius, 11 months isn’t too long a span.
“The current trading arrangements remain in place until December 31, 2020,” noted Atradius in its statement on Brexit. “However, this short timeline makes it more likely that only a limited future deal is plausible, which could potentially spell a painful adjustment in 2021.
“Further, should the two parties fail to negotiate a trading agreement by the end of the transition period, they risk falling back on WTO (World Trade Organisation) rules. The pressures on the economic environment and the underlying uncertainties continue to take a toll across the UK and all EU markets.”
Atradius asserted that a climate of negative sentiment has been created following the period of uncertainty, and it believes the negativity will likely persist in 2020 in the absence of details about what lies ahead, trade-wise, for the UK and the EU.
“After stagnating in 2019, we expect UK business investment to stay flat again this year amid low confidence and high uncertainty,” stated the insurer. “UK economic growth is forecast to slow to only 1.0% in 2020, cushioned to some extent by fiscal and monetary support from central sources. Many firms already significantly debilitated by the volatile conditions since the 2016 referendum remain at risk of insolvency.”
It was highlighted that insolvencies in the UK have been growing significantly since 2018, increasing another 8% last year and can be expected to continue rising by at least 7% this time around.
“The impact on insolvencies in the rest of Europe will be more moderate; with those countries with the closest trading ties to the UK more likely to be at risk, for example Ireland,” said Atradius. “The impact on insolvencies for other important trading partners, such as Belgium, the Netherlands, and Denmark, as well as the rest of Europe, is expected to be visible but more limited.
“However, the climate remains volatile, and overall the risk of business failures rising outweighs the likelihood of a more modest impact. Industry sectors with strong reliance on exports to the UK, such as automotive, textiles, and high-tech goods can be expected to be more significantly impacted.”
It’s not all doom and gloom, though.
The insurer pointed out: “While the overall economic outlook remains subdued, individual businesses continue to report success stories and the opportunity for trade growth, both during and beyond the transition period, should not be underplayed.
“One of the keys to success is a robust risk management strategy that combines access to reliable business intelligence to enable informed decision making and the ability to protect the business from trading risks.”