UniCredit Bank Austria Economics: Analysis of the economic relationship between the federal states and the UK
Federal states affected by Brexit to varying degrees
- In 2017, Austria exported goods to the value of 3.9 billion euros to the United Kingdom. This represents 2.8 percent of total exports.
- In the previous year, British demand for foreign goods and services resulted in Austrian value creation to the amount of 4.3 billion euros or 1.1 percent of GDP, whereby goods contributed 2.3 billion euros and services 2 billion euros.
- At provincial level, value creation induced by the trade with the UK ranged from 1.6 percent in Vorarlberg to 0.6 percent in Burgenland as part of the regional product.
- In the event of a “hard Brexit”, the impact on the industrially strong federal states will be above average.
- A total of approx. 40,000 jobs in Austria depend directly or indirectly on the trade with the United Kingdom.
The British cabinet approved a draft agreement text in relation to the withdrawal from the EU on 14th November 2018. The EU states also rubber-stamped the agreement during a special summit on 25th November. The majority of the British House of Commons has to accept the agreement on 12th December for it to definitely enter into force. However, the current view is that agreement by the British parliament is highly unlikely. ”The most likely scenario for the agreement is that renegotiations between the EU and Great Britain will take place as both sides absolutely want to avoid an unregulated Brexit”, states UniCredit Bank Austria Chief Economist Stefan Bruckbauer and adds: “If the United Kingdom remains in the internal EU market at least until the end of the transition period in December 2020, the short-term effects on the Austrian economy would be very minimal.”
The regional foreign trade with the United Kingdom
In 2017, Austria exported goods to the value of 3.9 billion euros to the United Kingdom which represents 2.8 percent of total exports. This means that Great Britain is Austria’s ninth most important export market. The three most important export goods are machinery, goods for the automotive industry and electrical goods which jointly constitute more than three-quarters of all exports to the UK. The share of regional exports to the United Kingdom in the total exports of each federal state is the highest in Styria with 4.1 percent. In Upper Austria and Vorarlberg, the share of 3 percent each is also above-average. “Increasing globalisation of the production network means that Austrian export figures must not be equated with Austrian value creation. Each Austrian export commodity also includes foreign value creation just as Austrian value creation is part of many export goods of other countries”, says Bank Austria Economist Robert Schwarz.
Exports by the German automotive industry, for example, include a significant share of Austrian value creation. It can be determined with the aid of world input-output-tables (WIOD) how much value creation is contributed by which industries in the various countries along the supply chain up to the consumption of the final product in a certain country.
Regional value creation by goods exports to the UK
British demand for foreign goods resulted directly and indirectly in value creation of 2.3 billion euros in Austria in 2017. Broken down into industries, the highest value creation was generated in mechanical engineering (480 million euros), metal industry (370 million euros), automotive industry (280 million euros) and the manufacture of electrical equipment (210 million euros).
“According to regional strengths of the individual federal states, they benefit to varying degrees from exports to the UK”, states Robert Schwarz and adds: “Upper-Austrian engineering generated the highest value creation with close to 250 million euros followed by the Styrian automotive industry with 124 million value creation on the basis of the trade with the United Kingdom.”
Overall regional value creation gains due to goods exports to the UK of 1.1 percent in Vorarlberg to 0.3 percent in Burgenland and Vienna were limited in relation to the total regional value creation. Vorarlberg is followed by the industrially strong federal states of Upper Austria and Styria with 1 percent “British value-creation share” each of the regional product. The share is 0.7 percent in Tyrol, 0.5 percent each in Lower Austria and Salzburg and 0.4 percent in Carinthia. In addition to goods exports, service exports also play a significant role in the economic relationship between Austria and the United Kingdom.
Regional value creation by service exports to the UK
In the previous year, service exports including energy and water supplies and construction generated an Austrian value creation of approx. 2 billion euros or 0.5 percent of GDP. The highest value creation in the tertiary sector is achieved by trade (440 million euros), corporate services (450 million euros) and transport (270 million euros). Vienna, as urban economy with a high share of the tertiary sector, benefits the most from service exports to Great Britain. On the basis of the relatively strong significance of tourism exports (Brits holidaying in Austria), Tyrol and Salzburg also achieve above-average value creation gains by service exports to the UK.
Exports of goods and services to the UK generate 40,000 jobs in Austria
“A total of approx. 40,000 jobs in Austria depend directly or indirectly on the demand from the United Kingdom. This represents 1.1 percent of all employment”, Schwarz calculates and adds: “The greatest employment effect can be observed in Upper Austria’s mechanical engineering industry with 1,200 jobs and the Styrian automotive industry with almost 800 jobs induced by the trade with the UK.” The relatively highest share of “UK-dependent” jobs exists in Vorarlberg with 2,800 jobs or 1.7 percent of overall employment. Absolute leader is Vienna with 8,300 jobs followed by Upper Austria with 7,500 jobs and Lower Austria and Styria with 5,900 jobs each.
In conclusion, it can be noted that the economic interdependence of the federal states and the United Kingdom is limited. A hard Brexit or the type of future economic relationship
between the EU and Great Britain, however, will have long-term effects on economic growth and employment in particular in the industrially strong federal states.
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Robert Schwarz, Tel. +43 (0) 50505 - 41974;
Email: robert.schwarz@unicreditgroup.at