Today's trade figures showed that the deficit on trade in goods rose to £9.2bn. This is high. This is very high. In fact it's the highest nominal deficit on record.
But should this be seen as a sign of weakness in the UK economy?
An article in today's Investors' Chronicle suggests that this is to do with export weakness:
“the bad weather… might have left some of our exports temporarily stranded on the M20”
But a closer look at the statistics suggests that this is not the case. Exports are growing strongly. In 2010 total goods exports grew by 16.9%. This is the strongest growth in goods exports since 1977. In the five years before the recession the average growth rate of exports was 3.8%.
The problem is – as far as net trade is concerned – that imports are growing even more quickly. This is not good for our trade balance, and it suggests the economy is not moving towards a better balance. But, as we have previously argued, import growth does suggest that domestic demand is still relatively strong. And as the Investors' Chronicle article notes, with a globalised supply chain increased exports require increased imports of parts from overseas.
However, the same Investors' Chronicle article continues to lambast the UK's export position:
"Last year, the UK exported twice as much to Ireland as it did to China (£16.9bn vs £7.6bn). And it exported more to Italy or Spain than to China too. Our export effort, then, is directed at those who aren't in a position to buy more anyway."
Yes, our exports tend to go to Europe (don't underestimate the importance trade relationships and geographical proximity), but our “export effort” is decidedly more global. In 2010 our exports to China grew by 41%, considerably more than growth in exports to Ireland (6%), Italy (6%) or Spain (7%).
The article's author is right that today's figures do not suggest the economy is rebalancing. But they are not all bad. Crucially, the impressive growth of both exports and imports shows that there has been a significant rebound in economic activity since the recession ended.
The question now, is now is what can we do to spur on export growth at a faster rate? Let's see what the Business Secretary's White Paper on trade tells us today.