Posts Tagged ‘Export’

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Is it for real? We keep hearing talk of an export-led recovery for the UK. But is it simply that the UK exports are so low that any rise looks to be quite significant in percentage terms. A new report from Ernst and Young provides just a hint that this time it might be for real.

UK companies need to look abroad. The last few years have seen UK consumers cutting back, and that, suggests Ernst and Young, is why they have been focusing on ways to increase exports.

The story overall? Well, let’s return to that in a moment. Let’s start with the positive.

According to Ernst and Young, the West Midlands “is emerging as an export powerhouse” and “is on track to grow goods exports faster than any other UK region by selling high-end engineering far outside Europe.” Engineering goods exports are forecast to grow at “an annualised rate of 4.8 per cent, worth £6.9 billion in 2017, compared with £5.5 billion in 2012.”

UK automotive exports to China are expected to grow 11.6 per cent – making it the UK’s top automotive trading partner by 2017, while exports of personal vehicles to Thailand are expected to rise from $302 million in 2012, to $617 million by 2017. The UK is expected to capture a 53 per cent share of the entire import market. UK engineering is also seeing exports rise to the Middle East – with growth in turbo jet exports to Qatar alone forecast to grow from $273 million in 2012 to $481 million in 2017. And finally, UK biopharma exports to China are expected to double from $52 million in 2012 to $104 million by 2017, with Chinese biopharma imports set to rise to $2.5 billion by 2017 (from $1.4 billion in 2012).

Break it down bit further, and Ernst and Young forecasts that in 2017, UK engineering exports to China will be worth $2.4 billion, automobile exports $3.8 billion and metals $2.1 billion. For Brazil, it forecasts $0.7 billion for engineering, $0.6 billion for automobiles and $0.6 billion for chemicals. For Hong Kong it forecasts engineering exports of $1.7 billion, $1.4 billion for electronics, and $1.3 billion for previous metals. And for Saudi Arabia it forecasts engineering exports of $0.9 billion, $0.4 for electronics and $0.4 for pharmaceuticals.

And yet for all that, Ernst and Young says that across the UK exports are not growing fast enough. It forecast 0.3 per cent annual growth for UK good exports against 1 per cent for the European average between now and 2017. So for the conclusion: making progress, but could do better.

© Investment & Business News 2013

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There is good and bad side to a currency falling in value. A cheaper currency is bad news for importers. It is bad news for consumers who want to pay as little as possible for the goods they buy, and for their holidays abroad. A falling currency can be bad news for inflation. But there is a flipside. It can at least hand exporters a massive terms of trade advantage. A country that needs to see exporters drive growth surely needs a cheaper currency. So why is it that the UK seems to have the bad side, but very little of the good side? A new report seems to provide an answer.

Between Q3 2007 and Q1 2009 the effective exchange rate of the pound fell 25 per cent. Inflation rose. Wage inflation didn’t, which left workers worse off. But the UK’s balance of trade in goods and services was largely unchanged. Why didn’t exports rise?

The Office of National Statistics has come up with four possible explanations.

Number one: Global supply chains. The argument runs like this: global trade has become so integrated, with supply chains being so closely in alignment, that it is very hard for a country that sits in a supply chain to suddenly start selling more goods just because prices have fallen. The ONS put it this way: “If multinational companies have an international supply chain structure, which involves moving goods and services between a number of countries before a final product is produced, it is difficult to change this structure in the short term in response to an exchange rate movement.”

Number two: Financial shock and composition of trade. This is a nice simple argument. The UK relies on financial services. In the aftermath of the 2008 crisis, financial services took the biggest hit, therefore UK imports were adversely affected.

Number three: Price effects. The ONS put it this way: “Domestic exporters – whose goods are relatively less expensive as a result of the depreciation – may choose to increase profit margins on sales to overseas customers, rather than passing on the full benefits of the exchange rate change.” There was another factor: oil. As the pound fell, the price of oil hit UK exporters.

Number four: Effect of downturn on main trading partners. This was surely the main problem for the UK. Sure, the pound was cheap, but our main trading partners – the US and the Eurozone – were in recession or even depression for many of the last few years.

So what can we take from all this, and say about what will happen to the UK next?

It does seem that the main reason why the falling pound did not lead to rising exports was short term in nature. The UK is slowly exporting more outside the Eurozone, but our exports to say the BRICS, were so tiny that it has taken time for the rise in exports to become noticeable. But the fact is that for the last couple of years export growth to China, for example, has exceeded import growth.

Ditto regarding integration within the supply chain. If it is the case that multinationals find it difficult to change their supply chain structure in the short term, this does not mean they cannot change it in the long term. The real hope, however, lies with re-shoring. If it really is the case that companies are beginning to return their manufacturing closer to where their customers are, that will lead to a slow, bit by bit improvement.

In other words, a cheap pound has not benefited UK exporters that much up to now. But that does not mean it won’t do so over the next few years

© Investment & Business News 2013

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The last couple of days has seen news on the UK to delight all but the most cynical. Alas it has also seen news to make the cynical look smug, and say ‘I told you so’.

The good news relates to trade. Exports of goods in the second quarter of 2013 reached £78.4 billion, the highest on record. Okay, imports were up too, rising to £103.3 billion, the highest level since the three months to November 2011. But when it comes to records, ‘best ever’ would normally be seen to score the ‘best in 18 months’.

The UK’s deficit in goods and services in June was £1.5 billion, the lowest deficit since January.

But the real encouragement relates to exports outside the EU. In June exports of goods outside the EU rose, while imports fell. In fact exports to non-EU countries increased by £1.3 billion (10 per cent) to £14.2 billion and imports from non EU countries decreased by less than £0.1 billion (0.2 per cent) to £16.8 billion.

Within the EU, exports of goods also rose, but not by as much (£0.9 billion or2.3 per cent), while imports increased by £0.3 billion or 0.6 per cent to £52.9 billion.

In Q2, UK exports to the US rose by £348 billion while imports were £96 billion, and exports to China were up £153 billion while imports shrunk by £17 billion. The rise in UK exports to China seems to be part of a trend. They have risen sevenfold since 2002.

Don’t over-egg the trade data; it is good, but not brilliant. It is encouraging, however.

Less pleasing was data compiled by the House of Commons Library at the request of the Labour Party. It found that since 2010, of the 27 countries in the EU only three have seen real wages (that’s wages after inflation) fall so steeply. It turns out that UK wages, after inflation, have fallen by 5.5 per cent since 2010. Only in Portugal, Greece and Holland have wages relative to inflation fallen more than that.

Those two sets of data show the two sides of the UK economy at the moment. There are signs, albeit not overwhelming signs, of exports leading recovery. But as long as wage rises continue to lag behind inflation, the UK’s economy looks fragile. Much of the growth we are seeing is coming on the back of consumers spending more, which itself occurs because they are once again running up debts.

The fix lies with getting productivity up, and that surely depends on more investment. That is why George Osborne’s approach to creating growth via rising house prices is dangerous, but we don’t seem to have learnt from past lessons.

Not enough investment and rising house prices were characteristics of the UK economy before 2008. They are becoming characteristics again.

© Investment & Business News 2013

The news on UK plc has been pleasing of late, but two doubts remain. Okay, the UK is expanding again, but it is growing from a very low base and very slowly. Secondly, is it the wrong type of growth?

So here is your starter for ten points: What does the UK economy need for it to grow in a more sustainable way?

Answer: more manufacturing, more exports, more investment, and better productivity.

So what did the UK get in Q1?

According to the second estimate of UK GDP from the ONS and out today, the UK economy expanded by 0.3 per cent in Q1, confirming its first estimate. Year on year the UK expanded by 0.6 per cent.

But capital formation shrunk 0.8 per cent and exports were down 0.8 per cent. So how did the economy grow? Well, domestic demand was up 0.4 per cent, imports were down 0.5 per cent (imports count as a minus when calculating GDP) and inventories were up 0.4 per cent.

In other words, one of the main contributing factors to UK GDP in Q1 was that companies built up some stock. Growth achieved that way is hardly sustainable.

As for rising demand, maybe this is connected with the talk of rising house prices. British consumer confidence does tend to be closely correlated with a buoyant housing market and it is far from clear which way the causation works.

Before the recession the UK grew on the back of household leverage as rising house prices made them feel more confident. Not much, it appears, has changed.

© Investment & Business News 2013

The headline figure was nothing to write home about, but drill down and maybe there is reason for real optimism.

The UK’s balance of trade in goods barely moved in March, with the deficit coming in at £9.1 billion. So far, so indifferent.

As for the UK’s deficit on trade in goods and services, this was marginally better than February scoring £3.1 billion from £3.4 billion the month before. Okay that was an improvement , but actually the deficit for March was pretty close to average over the last year or so.

The deficit has not significantly changed over the last ten years. Now, change the perspective, and look outside Europe. Exports to the US soared 21 per cent in March over the month before.

Exports to the BRICS have been steadily rising for some time. See this chart:

Okay, exports to China are still way below imports from China, but the chart makes it clear that exports have been growing much faster than imports for some time. In fact over the last two years, exports from the UK to China have increased by half as much again. Imports from China to the UK have risen 10 per cent.

© Investment & Business News 2013

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It was the biggest UK trade deficit since last August, but maybe there was a glimmer of hope in the figures.

The UK trade deficit was £3.6 billion in February, compared to £2.5 billion in January. That was not very good. In fact you would need to rewind the clock to August last year to find the last time the monthly deficit was so bad.

The deficit with the EU rose, but worryingly so did the deficit with the rest of the world.

Forget about the month on month data, it is not usually very reliable. Instead look at the last three months. During this period exports to Germany fell by £677 million, and by £670 million to the Netherlands. Exports to Sweden were down by £211 million and down £97 million to the US.

On the other hand, the UK exported £326 million more to Belgium/Luxembourg, £262 million more to China, and £101 million more to Italy.
As for imports from the US, the three month period saw something of a crash, with imports from the US falling by £490 million. Imports from Italy, Belgium/Luxembourg and Germany also fell. Imports from the Netherland, China, Norway and Spain all rose. It was good to see exports to China rise faster than imports from the country.

On the other hand, total UK exports to China during the three month period were £2854 million. Imports were £7759 million, so the UK has a long way to go to bridge that particular deficit.

The trade figures may contain some bright points, but overall they are not good. But why is this the case when sterling is so much cheaper? You can see why the deficit with the Eurozone is worsening; after all, the region is going through an even more torrid time than the UK, but why have exports to the rest of the world fallen?

A falling pound does not seem to be working. What the UK needs is investment, and that can probably only happen if QE is directly more specifically at companies.

©2013 Investment and Business News.

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