The UK Trade Balance: Good and Bad News
A year ago, there appeared to be a decent chance the UK would enjoy an export-led recovery. Export volumes, excluding oil and erratic items, were up 18% on a year earlier, boosting growth in manufacturing. RealGDPwas increasing strongly.
Now the picture is far less positive.
The latest figures on trade, released by the Office for National Statistics, show export volumes increased just 3.7% over the last year, and were down 2.8% comparing the latest three months with the previous three.
Import growth was 3.6% over the last year – just about matching export growth – and 1.1% over the latest three months. The export boost to growth has faded away.
Export growth is currently running at 3.7% per year and import growth at 3.6%. This compares to the OBR forecasts for the full year of 7.9% and 5.0%.
Whilst export growth is no where near as strong as predicted by the OBR, import growth is also weaker than it anticipated. The end result is that the trade balance is actually in better shape than the OBR forecast back in March. Back then it expected the Q1 trade balance to come in at -£13.1bn and Q2 at -£13.7bn.
The actual outturn (-£8.5bn & -£11.3bn) is therefore better than anticipated. That’s the good news.
The bad news is that this isn’t being driven by better-than-expected exports but by lower-than-expected imports and the reason we are importing less is because domestic demand has collapsed.
This is why the consensus view of the independent economic forecasters surveyed monthly by the Treasury is that the economy will now growth by only 1.2% in 2011. And the entirety of that growth will come from net trade. Domestic demand is expected to contribute zero per cent to GDP growth.
So the better performance in net trade is actually driven by domestic weakness and isn’t enough to offset the fall off in domestic demand. I’m not sure this is how George Osborne saw ‘rebalancing’ panning out.