I think I am on safe ground when I say that a pattern is emerging here. The UK trade balance is not improving, despite a significant exchange rate depreciation. Instead, both exports and imports are falling.The story behind these numbers is straightforward. On the import side, demand is falling as household incomes contract, firms reduce demand and unemployment rises. Imports are also falling due to the declining value of sterling. Cheap foreign tat isn't quite as cheap as it used to be.
On the export side, we should have seen some improvement in performance. The collapse of sterling should have made UK goods cheaper and therefore more cost-competitive in foreign markets. Instead, we see export demand contract. The only explanation must be that foreign markets are also contracting. The statistical services in North America and Europe are more than happy to confirm that hypothesis.
Today's trade numbers put to bed that old canard that the UK can export its way out of trouble on the back of a weak pound.
6 comments:
Another depressing chart from Alice.
Keep it up.
Hi Alice,
We model exports as a function of relative price and demand using world trade as a proxy. Sterling is but one element in the relative price mix.
We model imports as a function of relative price and a demand term using GDP, Domestic Demand or TFE as a variable.
But in addition a high proportion of exports are import dependent. For example car components are imported, assembled and sent to the docks as finished vehicles. As you export so shall you import. Therefore we include imports as a function of exports in the model.
The external deficit should narrow as the domestic output gap increases, to some extent it does but never by enough.
As you suggest, the old duck is dead.
Today's trade numbers put to bed that old canard that the UK can export its way out of trouble on the back of a weak pound.
I don't think it is put to bed .. all it suggests is that the demand isn't there anywhere else in the world, the economies we export to are in the sh*t too!
It may also suggest that if we are to export our way out of this mess, the pound must be weaker still.
Whatever, our phoney economy is coming to an end.. And we cannot spend our way out of it, we need much more production and savings.
Though our dear leaders have obviously chosen the big state path (or as Mandy puts it "Smart Government") in big government/"Keynsian" white elephant projects paid for by borrowing and the printing press... destined to go the way of Chile, though hopefully we don't have to wait for major UK companies to be nationalised, and the onset of hyper-inflation before we start our revolution.
Maybe we should all be producing more than we consume. Or at least trying to.
Nahhh. Let's just pull out our credit cards and keep shopping!
Aren't the invisible exports of the financial sector included in trade figures? I thought they were. So any collapse in finance would show up as reduced exports.
Perhaps you filtered out the effects of financial companies.
Anyway.
I see a crash a comin'
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