STATEC, Luxembourg’s statistics office, has published a report predicting that the UK’s exit from the EU will hurt Luxembourg unless jobs are relocated from London to Luxembourg.

Since the Brexit saga began, one of the biggest question marks has been to what extent the UK’s vote to leave the EU might negatively impact its economy.

That it will hurt the UK economy is in little doubt, according to STATEC.

Drawing on a number of recent studies and its own data, it predicts that UK economic growth will fall, whether or not Brexit is ‘soft’ or ‘hard’.

STATEC calculates that UK GDP growth, on average, will be 5.4% lower in its worst-case scenario and 1.2% lower in its best-case scenario.

It takes pains to emphasise that this does not suggest an imminent collapse or a recession but rather that GDP growth will be that much lower as compared with a situation where the UK remained within the EU.

In other words, even if GDP growth in the UK remains positive in the wake of Brexit, that does not mean Brexit did not have a negative effect, it said.

A European problem

The outlook for the UK’s financial sector is even grimmer.

In STATEC’s worst-case scenario, if some banks begin relocating activities to other countries, added value could fall by 12-15% for the UK, while some 70,000 jobs could be lost.

If most economic indicators do not reflect this trend at the moment, the study notes there is a difference between announcing Brexit and Brexit itself.

Yet the UK’s misfortune is unlikely to benefit most of the rest of Europe, STATEC warns, as Britain is one of the most important trading partners for goods and services for most EU member states.

For Luxembourg, the UK is the fifth-largest trading partner for exports, and the seventh-largest for imports.

And while the exchange of goods between the two has fallen over the last 10 years, the exchange of services has grown continually since 2000.

Out of more than 85 billion euros in total exported services for Luxembourg, more than 14 billion euros go to the UK.

The export of financial services accounts for half of this, representing 16% of Luxembourg’s overall financial exports in 2015, second only to Germany.

The importation of financial services from the UK to the Grand Duchy, meanwhile, stood at 22%.
‘Hard’ Brexit to severely impact Luxembourg

The seven UK finance organisations active in Luxembourg, out of a total of 141, accounted for 17.2% of the Grand Duchy’s total net assets in 2016 (600 billion euros), putting the UK in second behind the US (20.5%).

In light of this, STATEC carried out a simulation of a ‘hard’ Brexit as compared with a scenario without Brexit and concludes that the Luxembourgish finance sector could suffer a 2.5-percentage-point drop of added value, knocking a full percentage point from its GDP.

What is more, 1,600 jobs would be in danger, with 600 in the finance sector alone.

Such a scenario, however, does not take into account possible positive externalities, such as the relocation of activities from UK companies and banks to Luxembourg.

If the UK loses its European passport, thereby denying its financial sector access to the European market, Luxembourg could become an attractive alternative for many companies, STATEC says.

Its report cites a number of companies, including HSBC, JP Morgan, M&G, Blackstone and Carlyle, as having taken the first steps towards relocating to Luxembourg, or making plans to do so.