Export-led growth is so damn difficult
Eurostat have just published their monthly trade figures for the Euro Area and for each EU member state. As usual, it makes pretty depressing reading if you’re British, with this country recording the largest deficit:
Remember that the Office for Budget Responsibility expects net trade to contribute half of all growth this year and a quarter next year. Our trade with the Euro Area is looking a bit anaemic – between Jan 2011 and Jan 2012, our exports to Euro members grew by 5 per cent, but our imports from the Euro Area grew by 8 per cent.
It’s the figures for growth rates that particularly interested me. Turning to the growth figures for total trade (intra and extra EU), the latest figures illuminate just how difficult it is to achieve export-led growth during a global crisis, when everyone else is trying to do the same. IN the chart below, the horizontal axis measures export growth between January 2011 and January 2012. The vertical axis does the same for imports; each diamond is a European country.
Malta and Cyprus have small economies, highly reliant on tourism (and I’ll admit I don’t know what’s going on in Bulgaria) but otherwise there is a very interesting pattern that I want to concentrate on. European governments are all trying to get their countries into the bottom right hand quarter of this chart – rising exports and falling imports.
But for the most part, they find themselves in the top right – exports and imports both rising. In fact, I haven’t been able to fit in a label for all the countries, the space is so jammed. It is possible to get into the bottom right – but look at who’s doing it: Spain, Italy and Greece. The decline in imports in these countries is a function of falling demand, it has little to do with export-led growth.
The top right hand quarter is actually a good place for most of us to be, in a highly integrated Europe it’s an indicator that we’re all buying and selling goods and services; if the European economy slumps we’re likely to slide into the bottom left.
But the difficulty of getting into the bottom right suggests that the contribution of trade to growth is going to be less than the increase in exports. I’ve blogged in the past about Britain’s long-standing tendency to suck in imports and this chart highlights how difficult it will be to improve the balance of trade when everyone else wants to export too. Rising exports will make a difference, but less than might be hoped for.