From the TUC

The EU’s increased importance to UK exports over the past year

11 May 2016, by in Economics

While much reporting focuses as normal on a widening of the trade deficit, the export figures have for the past year shown some shift in the relative importance of the EU.

Volume figures show an increase in EU exports of 2.6% on the quarter and 6.0% on the year.

This is in contrast with non-EU exports showing a decline of -2.6% on the quarter, and -1.5% on the year.

The chart shows index numbers: over 2012 to 2014 trade was in the doldrums across the board; with some degree of recovery in the world economy, non-EU exports rose considerably faster; since 2015, however, non-EU exports fallen quite abruptly but EU exports have continued to rise.  Since 2012 export volume growth to EU countries has been marginally higher than to non-EU countries (i.e. the blue line is above the red line on the most recent reading; NB this is not the same as saying more exports went to EU countries).

Export volumes, 2012=100

EU_may16_2

In cash terms, as in all the commentary today, the goods deficit for the first quarter at £34.7bn was at a post-crisis high. Over the year this was up by £1.1bn. The table shows how the damage was done by an increase in imports from the EU, but more important was the reduction in exports to non-EU countries (NB here the signs are reversed, so a -ve refers to a higher deficit).

Change in trade flows, 2015Q1 to 2016Q1

EU_may16_3

It is likely that the improved export position with the EU reflects wider trends, with recent concerns for the global economy more skewed towards non-EU countries. Serious commodity price falls have hit Brazil, Russia and Canada, worries about China continue and perhaps above all US growth has weakened over recent quarters. In contrast – perhaps boosted in part by the ECB’s incredibly vigorous programme of QE and some reduction in the severity of spending cuts – EU growth has picked up a little.

GDP, quarterly growth

EU_may16_1

The story is also supported by this extract from an Institute of Directors statement on the figures:

Even with the problems in the Eurozone, a majority of exporting IoD members say that the EU is the market in which they have seen the most growth over the past two years.

Now nobody’s getting carried away – the recent EU macro strategy is very far from ideal, even if it is a little less bad. (Statistically, there have been reliability issues on trade figures, and there may still be concerns with deflators.) But the changed balance and perhaps changed global risk profile are a reminder that it is not sensible to assume that non-EU countries will continue to power ahead in the same way that they have in recent years.

3 Responses to The EU’s increased importance to UK exports over the past year

  1. Phil
    May 11th 2016, 11:33 am

    Europe will blow its lid pretty soon.

    Serious question though: how does the ECB QE policy contribute to growth? What is the mechanism exactly?

  2. Tony Hart
    May 12th 2016, 6:22 am

    Exactly, just what do we import from EU? Why cannot we make those products ourselves?

  3. Geoff Tily

    geoff
    May 12th 2016, 2:17 pm

    Phil, I owe you a fuller response, but for the moment I think the below extract from today’s inflation report is helpful.

    “Following the volatility in financial markets around the turn of the year, sentiment in risky asset markets appears to have improved since the February Report (Section 1.1). One factor
    supporting that recovery has been communication by several central banks suggesting more stimulative monetary policy than had previously been expected. This was accompanied by a further material flattening in benchmark yield curves (Chart 1.1). In addition, the relative stability of the renminbi and some reduction in concerns about near-term growth
    prospects in China (Section 1.2) have provided a fillip to risk sentiment and commodity prices (Section 1.1). An improvement in sentiment has also been reflected in measures of financial market risk aversion, such as option-implied equity price volatility, which has fallen back to mid-2015 levels (Chart 1.2). Overall, these developments should support the outlook for global growth, which remains broadly unchanged from the February Report”.

    liquidity preference tells me that QE will reduce long-term rates of interest, or at least bring down severely elevated rates. With a buyer of last resort for corporate bonds etc this must help business confidence. And QE seems also to have put a floor under oil price declines, which may have helped balance sheets. I’m no expert but the timing of QE and revivals in economic activity also seems telling. None of this is to say that I think it is a sensible way to support the economy.

    On Tony’s question: I agree, we should do more ourselves. Hence industry plans etc.