Select your language

Suggested languages for you:
Log In Start studying!
StudySmarter - The all-in-one study app.
4.8 • +11k Ratings
More than 3 Million Downloads
Free

All-in-one learning app

  • Flashcards
  • NotesNotes
  • ExplanationsExplanations
  • Study Planner
  • Textbook solutions
Start studying

Impact of Brexit on the EU Economy

Save Save
Print Print
Edit Edit
Sign up to use all features for free. Sign up now
X
Illustration You have already viewed an explanation Register now and access this and thousands of further explanations for free
Economics

Has the impact of Brexit on the EU economy been milder? Is it just the UK that is struggling with the effects of Brexit? How has the EU economy handled Brexit? Has EU trade suffered as a result of Brexit? Many findings on the impact of Brexit on the UK economy have been discussed, but there have been fewer contributions on the impact of Brexit on the EU economy.

Let us take a look at the impact of Brexit on the EU economy.

Understanding Brexit and the EU Economy

Brexit refers to the UK’s ‘exit’ from the European Union (EU). It came into effect as a result of the referendum held on 23 June 2016. Brexit had an impact on the economic situation of both the UK and the EU.

The EU, which stands for the European Union, is the union of 27 European member states for economic and political benefit. The EU was established to ensure the free movement of people, goods, services, and capital.

The following countries are part of the European Union after Brexit: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Lithuania, Latvia, Luxembourg, Maltha, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Impact of Brexit on the EU Economy Overview

The main impact of Brexit on the EU economy is the uncertainties surrounding it. Relations with the EU were dependent on the withdrawal agreement.

A withdrawal agreement allows free movement of EU citizens to the UK and UK citizens to EU countries until the transition period is over.

After that, citizens can keep their right of residence if they have sufficient means and legality and are related to someone who has the same rights. Many EU citizens left the UK after the referendum.

With the exit of the UK, the total population of the EU also decreased to about 13%. On the other hand, Brexit could inspire other Union countries to leave the European Union and curtail all policies and conditions to act individually.

Another significant impact was the loss of trade and unrestrained movement, as the UK was the largest economy and support system in the EU. The massive trade restrictions affected essential sectors such as the automotive industry, the pharmaceutical industry, and the financial services sector – some positively, some negatively.

Brexit had both positive and negative impacts on automotive, pharmaceutical, and financial services due to trade restrictions. The EU gained in the financial services market as part of the London derivatives market moved to Amsterdam.

Impact of Brexit on the EU Finances

The UK’s withdrawal from the EU had many positive impacts on the EU as well, including the following:

  • 10% of UK banking assets have moved or are being moved to the EU.

  • Approximately 440 banking and financial institutions have left the UK and relocated to the EU.

  • 7500 jobs have been exported to the EU in the financial services sector.

Amsterdam, rather than London, became the most critical location for European equity trading, while London’s derivatives trading lost 75% of its euro volume to New York and Amsterdam.

However, the EU received less foreign investment for its projects after Brexit compared to the UK.

Impact of Brexit on the EU Automobile

For all EU countries, car manufacturers had chosen the UK for assessment and certification, which allowed EU countries to produce and market their cars. However, with Brexit, the UK certification will no longer count as approval and carmakers associated with the EU will no longer be able to market their car with the UK certification. Under the new proposals, carmakers will have to obtain type approval from individual EU states.

The EU is the primary importer of cars from the UK, accounting for about 70% of about €42 billion.

If no agreement is reached between the UK and the EU, the UK will lose a large portion of its business, as the EU is its largest importer of cars. In the event of a no-deal Brexit, the UK would risk losing up to £55 billion in the auto industry due to high tariffs on imports to the EU.

Impact of Brexit on the EU Economy Impact of Brexit on EU international trade StudySmarterFigure 1. EU’s exports, imports and trade Balance, Source: Eurostat, ec.europa.eu/eurostat

As we can see in Figure 1 above, EU car exports peaked in 2015. From 2016, after the Brexit vote, EU car exports declined. EU car imports peaked later in 2019 but began to decline in 2020.

Impact of Brexit on EU Economic Power

In 2017, after the Brexit referendum, both the EU and the UK grew at similar rates, around 2%. The COVID -19 pandemic negatively impacted both the EU and the UK, but the pandemic hit the UK worse, with GDP growth of -9.396% in 2020.

The UK was the largest contributor to the EU budget, so the EU had to adjust its budget after Brexit. It had to cut spending, increase contributions from its member countries, or a combination of both.

The Brexit led to a wider gap between the EU’s spending and revenues and caused the debt level to rise further in 2020.

Impact of Brexit on the EU International Trade

Of all the countries associated with the EU, Germany had the greatest impact of Brexit on its many industries, as it is the largest trading country in the EU after the UK. Industries such as pharmaceuticals, goods, and road vehicles were hit hard.

After Brexit, trade relations between the EU and the UK deteriorated compared to the EU’s trade relations with other countries. European companies reduced their investments in the UK after Brexit.

Trade between the US and the European Union totalled approximately $627 billion in 2021, an 18% increase from the previous year. Trade relations between China and the EU also saw a 17% increase, with trade totalling €558 billion. However, post-Brexit trade between the UK and the EU in the same year increased by only 2% to £308 billion.

Impact of Brexit on the EU Economy - Key Takeaways

  • Brexit, i.e., the UK’s exit from the European Union (EU), was decided by referendum on 23 June 23 2016.
  • Brexit had an impact not only on the economic situation of the EU but also on the population of the EU, which will decrease by 13% by the end of 2020.
  • A withdrawal agreement allows free movement of EU citizens to the UK and UK citizens to EU countries until the transition period is over.10% of UK bank assets have moved or will move to the EU. About 440 banks and financial institutions have left the UK and moved to the EU.
  • 7400 jobs from the financial services sector have moved to the EU.
  • It has been suggested that the UK would risk up to £55 billion in the automotive industry in a no-deal Brexit due to high tariffs on imports to the EU.
  • The total GDP of the UK was USD 2764.20 billion compared to the total GDP of the EU of USD 15,292.10 trillion.
  • In 2020, the UK inflation rate was around 0.99%, while the EU inflation rate was 0.5%.
  • In 2021, post-Brexit trade between the UK and the EU will increase by only 2% to GBP 308 billion.

Impact of Brexit on the EU Economy

Brexit impacted both the economic condition of the EU but also the EU population as it decreased by 13% by the end of 2020. 


Also, there have been a lot of uncertainties because of the relationship between the UK and the EU. The EU relationship was dependent on the withdrawal agreement. Many EU citizens left the UK after the referendum. 

In 2017, after the Brexit referendum, both the EU and the UK grew at similar rates, at around 2%. The COVID-19 pandemic impacted the EU negatively.


The UK was the major contributor to the EU’s budget. Post-Brexit, the EU had to work out the adjustment to its budget. 


Brexit resulted in a higher gap between the spending and the income for the EU and further increased debt in the year 2020. 

The UK’s withdrawal from the EU had many positive impacts on the EU as well, including the following:


  • 10% of UK banking assets have moved or are being moved to the EU.
  • Approximately 440 banking and financial institutions have left the UK and relocated to the EU.
  • 7500 jobs have been exported to the EU in the financial services sector.


Amsterdam, rather than London, became the most critical location for European equity trading, while London’s derivatives trading lost 75% of its euro volume to New York and Amsterdam.

Industries such as pharmaceuticals, goods, and road vehicles were hit hard in the EU.

European firms reduced their investment in the UK post-Brexit.

Brexit will end the movement of free labour between the UK and the EU. Thus, European businesses cannot rely on cheap labour anymore. If they employ UK citizens, they might need a work visa or sponsorship. 

Final Impact of Brexit on the EU Economy Quiz

Question

When was the Brexit referendum passed?

Show answer

Answer

On 23 June 2016.

Show question

Question

How many financial institutions have left the UK and moved to the EU post Brexit?

Show answer

Answer

About 440 banking and financial institutions have left the UK and moved to the EU.

Show question

Question

What city replaced London as the primary location for European share trading?

Show answer

Answer

Amsterdam

Show question

Question

London’s derivatives trading lost ¾ of its euro volumes to which cities?

Show answer

Answer

Amsterdam and New York.

Show question

Question

What was UK’s total GDP in the year 2020?

Show answer

Answer

The total GDP of the UK was USD 2764.20 billion.

Show question

Question

What was the EU's total GDP in the year 2020?


Show answer

Answer

EU's total GDP at 15,292.10 tn USD. 

Show question

Question

Which three sectors are most important for the EU’s imports and exports with the UK?

Show answer

Answer

For the EU, wholesale services, automobiles and chemicals are the top 3 sectors for the exports and import trade with the UK.

Show question

Question

What was the trade between the UK and the EU increased to post-Brexit?

Show answer

Answer

Post-Brexit trade between the UK and the EU in 2021 increased by only 2% to £308 billion.

Show question

Question

What was in the Withdrawal Agreement?

Show answer

Answer

A withdrawal agreement allows free movement of EU citizens to the UK and UK citizens to EU countries until the transition period is over. 

Show question

Question

What was the rate of inflation for the UK and the EU in the year 2020?

Show answer

Answer

In 2020, the UK inflation rate was around 0.99%, while the EU inflation rate was 0.5%.

Show question

60%

of the users don't pass the Impact of Brexit on the EU Economy quiz! Will you pass the quiz?

Start Quiz

Discover the right content for your subjects

No need to cheat if you have everything you need to succeed! Packed into one app!

Study Plan

Be perfectly prepared on time with an individual plan.

Quizzes

Test your knowledge with gamified quizzes.

Flashcards

Create and find flashcards in record time.

Notes

Create beautiful notes faster than ever before.

Study Sets

Have all your study materials in one place.

Documents

Upload unlimited documents and save them online.

Study Analytics

Identify your study strength and weaknesses.

Weekly Goals

Set individual study goals and earn points reaching them.

Smart Reminders

Stop procrastinating with our study reminders.

Rewards

Earn points, unlock badges and level up while studying.

Magic Marker

Create flashcards in notes completely automatically.

Smart Formatting

Create the most beautiful study materials using our templates.

Sign up to highlight and take notes. It’s 100% free.