From the TUC

What are the implications of today’s trade figures?

09 Dec 2010, by in Economics

The UK’s negative trade balance widened in October, with total imports £3.9 billion higher than total imports that month. Concentrating on trade in goods, the balance was -£8.5 billion, the highest ever recorded. This was disappointing, as the goods deficit had been expected to be about £500 million lower than this. The deficit for goods excluding oil and other erratic items was -£8.2 billion, another record.

Regular readers may point out that this seems to contradict the picture of healthy manufacturing exports evident in recent data. It doesn’t – our exports have been growing, but our imports have grown faster. If you look at what has happened over the past year, you get the same picture whether you look at trade in goods or total trade, trade in the EU or outside the EU – our exports have grown healthily as the world has recovered from the global recession, but our imports are just that bit healthier:

Change in imports and exports, latest 3 months compared with same 3 months in 2009 (%)

Exports

Imports

Trade in goods

16.3

18.5

Total trade

11.7

14.5

EU (27)

12.3

12.5

Non-EU

21.3

25.3

This is very similar to what has happened in previous recessions. As I pointed out earlier this year, in the recoveries of the 1980s and 90s the growth rate for exports and imports was much the same. Trade only contributes to GDP if exports outpace imports, so the continuing trade gap is a genuine problem.

It is a problem for the Office for Budget Responsibility, which accepts that the balance for 2010 will be negative and therefore doesn’t forecast it making a contribution this year. But after that it does, accounting for a third of growth next year:

Year 2010 2011 2012 2013 2014 2015
GDP growth (%) 1.8 2.1 2.6 2.9 2.8 2..7
Contribution of net trade – 0.9 0.7 0.9 0.7 0.6 0.5

Source: Economic and Fiscal Outlook, OBR, table 3.5.

Compared with their forecast in June the OBR has revised down the contribution they expect trade to make (table 1.1), but it is still significant. Private industry still looks quite healthy and exports are doing well, so it certainly isn’t impossible that the next five years will look like this, but I’m certainly not betting on it.