Trading blows: an update on the global trade outlook

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Following the publication of last week’s latest tranche of GDP revisions from ONS, some folks were trumpeting the positive export story – as the value of UK goods and services exports hit a record high in the first three months of 2018. But is this news as good as it seems? Our latest report Trading blows, updates the analysis in our 2017 Global trade: run aground or structurally sound  and takes a look at what’s been happening to manufacturers’ exports over the past year.


Export success – a reality check

In the first three months of this year total UK exports amounted to just under £150bn, with manufactured goods making up 46% of the total. This comes on the back of a really solid year of growth in 2017 – goods and services exports rose at their fastest rate since 2011 (over 5%) and manufactured goods exports grew by almost twice that pace (which we wrote about at the time). This is a trend manufacturers confirmed in their responses to a recent EEF survey alongside a relatively optimistic outlook that this momentum would extend into 2018.

2017growth-UPDATE

 

63% of companies reported growth in export sales last year and one in six of these firms recording year-on-year growth of 20% or more.

60% of companies expect exports to increase in 2018 and a significant 28% expect export sales to increase by 10% or more.

 

The positive data does conceal some more worrying developments lurking underneath the headlines. UK exports may be growing, but manufacturers are not unhindered in their quest to expand their overseas sales.

Year on year growth for exporters was insufficient to halt a decline in the UK’s share of global trade and it is still, overall sub-par compared with the past. In last’s year’s report we attributed a portion of this gap to structural factors and manufacturers are telling us that some of these are still in play.

2018spider

Recent trade policy, while turning more protectionist, has been increasingly focused towards preferential treatment for local firms in our export markets. Compared with our last trade report, the number of respondents citing more government intervention for local businesses has risen considerably across the US, Brazil, UAE, and to a lesser extent, China. In other words, UK manufacturers are coming up against overseas governments offering support for local businesses and more protectionist measures in the form of non-tariff barriers.

Moreover, recent global trade tensions point to only one direction of travel.

Having an export plan

While there are some new challenges to navigate for exporters our survey indicates the importance of having a plan. At the firm level we see varying performance depending on the approach to exporting. Companies with a more strategic approach to growing their export business are more likely to be predicting higher rates of expansion in their overseas sales, than those firms relying on external factors alone.

Indeed, the most cited reasons amongst manufacturers expecting to see their exports increase by 10% or more are the result of actions to improve market share in existing markets, the recovery in demand and company strategy to enter new export markets. While those expecting smaller gains attribute it mostly to the weak exchange rate – an exogenous factor beyond their control.

strategies-2018

Could do better?

You can forget the last government’s unrealistic export target, but it did acknowledge the need for the UK to do better and to have more ambition about exporting success. That ambition wasn’t always backed up with a clear plan on how to help UK companies achieve it.

Given the international backdrop has become trickier and could get more so as we deal with the known unknowns of Brexit implications, the importance of government action been better aligned with a clear export ambition and backing it up with an export support strategy has become more important.

The government’s industrial strategy white paper was alive to this, committing to a new export strategy – which the Department for International Trade consulted on in the spring.

We need that to be a reality. It can make a difference as our report shows. Companies that access support for their export activities do better and achieve results from either exporting efforts more quickly.

support-2018

But companies aren’t always using export support to plug the gaps in their capabilities. For experienced goods exporters – this is often information and guidance that is market specific. Government isn’t the only place manufacturers look for this advice, but they are seen as a trusted provider.

The export strategy, when it comes should:

Offer companies of all sizes clarity on the strategic aims of government-backed export support. The benefit of the UK’s overseas network can be better aligned to match companies’ requirements for market-specific support and intelligence. Importantly, companies are not expecting government to provide the whole spectrum of export support and guidance.

 

Offer companies of all sizes clarity on the strategic aims of government-backed export support. The benefit of the UK’s overseas network can be better aligned to match companies’ requirements for market-specific support and intelligence. Importantly, companies are not expecting government to provide the whole spectrum of export support and guidance.

Make better use of local networks, including growth hubs. Currently sign-posting and advice is inconsistent and often poorly targeted. These channels should be better conduits of information to smaller companies, helping them identify services available through their export journey, which would support SMEs scaling up their activities more effectively.

The Department of International Trade should better structure their communications with industry during times of change or turbulence in global markets. In addition to Brexit, exporters will benefit from more tailored information when the UK’s relationship with overseas markets sees a significant development.

 

 

 

 

Author

Chief Economist

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