Today marks the beginning of the UK Trade and Investment’s sixth annual ‘Export Week’. Export Week covers various UK-wide events aimed at encouraging businesses to break into export markets or expand their international business.
ONS figures on UK trade released last week highlight why Export Week is needed. In September, another £1bn was added to the UK’s trade deficit. This was despite a small increase in exports from August to September, as imports rose faster on the back of a strengthening domestic market. The quarterly picture looks worse – exports fell by £0.3bn and imports increased by £0.6bn putting the overall trade balance at -£2.8bn for September 2014.
The divergence in the economic outlook of the UK and most other advanced economies (namely the Eurozone) has meant that strong domestic market conditions are propping up demand for imports. This has led to a shift in its trade balance with other countries; the UK’s deficit with developing economies is shrinking while its deficit with advanced economies in widening.
Low growth and disinflation in the Eurozone has meant cheap imports for the UK and low demand for UK exports; as a result, the UK deficit with Germany is at an all-time high. On the other hand, notable improvements to the UK’s deficits with China and Honk Kong reflect cost pressures and increasing demand for imports in the fast-growing Asian economies.
Still, the buzzword for UK trade is deficit. The weak global growth environment is not helping either, with the CPB’s ‘World Trade Monitor’ released on Friday showing a modest decline in world trade. The volume of world trade fell in August by 0.8% on the previous month, as Eurozone troubles and global geopolitical uncertainty continue to weigh on international trade.
Nevertheless, trade momentum – which teases out the effects of volatility from monthly data – increased by 0.2 percentage points on month to provide some optimism in an otherwise gloomy release. The overall pattern is one of sluggish trade momentum in advanced economies and stable growth in emerging markets.
The US is the only advanced economy bucking this trend. This has largely occurred on the backdrop of the US energy boom allowing America to record its highest level of oil exports in 57 years. Last month the US also became the global leader in the production of petroleum, driving crude oil prices down and forcing other producers to step up production to maintain cash flow.Without a doubt, the world's historically largest importer of oil transitioning to net exporter status is changing the landscape of world trade.
The aggregate impact in the divergence of advanced and emerging economies appears to be positive, with world trade steadily recovering post-crisis. However, as opposed to the US, the UK has failed to reap the benefits of its faster recovery vis-à-vis other advanced economies to improve its global net trade position.
Given the importance of trade for economic growth and the Treasury’s coffers, the UK needs to step up its efforts to support exporters. The critical role of the manufacturing sector on both sides of the trade balance sheet cannot be disputed. On the one hand, the manufacturing sector provides for half of UK exports. On other hand, boosting domestic production reduces the UK’s dependence on imported goods.
Hopefully, Export Week will prove to be a helpful tool in the UK’s effort to capture a larger share of global export activity now that it’s up for grabs.