UK on the way to balance of payments surplus by 2015
by Scott Corfe
18 July 2012
Growing UK exports to the fast growing markets in Asia, Latin America and Africa mean Britain will not be so reliant on EU trade in the future - says think-tank
For years, those trying to make the case for the Britain's continued European Union membership have drawn attention to the fact that the other member states have been the United Kingdom's main export market. Actually the claim was exaggerated because it only related to exports of goods. Exports of services, which are arguably more important for the UK economy, have always been more heavily based on the non-EU markets. Also trade figures for goods with the EU are distorted by entrepôt trade.
About 20 per cent of British goods 'exports' to Ireland are re-exports from other countries imported through Belfast Harbour. And UK 'exports' to Belgium and the Netherlands are implausibly high and clearly distorted by Rotterdam and Antwerp port activities, though many of these exports probably go on to other parts of the EU. But in the last three months, a revolution in the orientation of British trade has taken place - with non-EU exports of goods exceeding EU exports of goods by 1.5 per cent. This is the first three-month period for which this has been so since the 1970s we believe, though comparable data no longer exists.
There was a hiccup in February 2011, when this also happened for a single month, provoking action amongst the Eurosceptic bloggers. But subsequent data showed EU trade reviving and exports to Europe from March to May 2011 exceeding non-EU exports by 19 per cent. Partly because they jumped the gun a year ago on a single month's data, the Eurosceptic bloggers have been strangely quiet this time. The latest data shows that compared with a year ago, in the latest three-months exports to the EU were down by 7.3 per cent - reflecting the euro-based economic crisis - while exports to the non-EU countries were up by 13.2 per cent; reflecting the growing markets in Asia and elsewhere.
Historically UK trade has been focused on the former colonies. This started to change in the 1960s, as the European countries recovered from the war and trade barriers came down - and Europe became our main trading partner for goods. A process that was boosted by the UK's accession to the EU in January 1973. Now, with Europe mired in economic recession and other economies growing faster, exports are reorienting themselves again towards the fast growing emerging economies.
We carried out a recent study for the insurers RSA looking at the future of the UK shipping industry. This points likely growth in UK exports to the fast growing markets in Asia and elsewhere. Over a five-year period, export growth of 30 per cent to Asia, more than 40 per cent to Latin America and above 60 per cent to Africa are predicted.
The good news for the UK is that the increasing exposure of our exports to the fast growing economies is likely over time to transform the British balance of payments. Also, imports are likely to be restrained by the ongoing squeeze on disposable incomes. Our next forecasts are likely to predict a balance of payments current account surplus in 2015, the first since 1997.
Of course, this does not in itself make a case for getting out of the EU. The cases for and against are much the same, with the EU receiving 49 per cent of UK exports of goods as they were when it received 51 per cent. Whether the UK should leave the union or not will be determined by the extent to which the EU, in the face of the readjustments caused by globalisation and the euro crisis, decides to turn inwards. That battle has yet to be fought, though there are worrying signs that Europe will turn inwards in a way that makes it impossible for Britain to remain as a member.
Scott Corfe is senior economist at the Centre for Economics and Business Research think-tank, in the United Kingdom
For years, those trying to make the case for the Britain's continued European Union membership have drawn attention to the fact that the other member states have been the United Kingdom's main export market. Actually the claim was exaggerated because it only related to exports of goods. Exports of services, which are arguably more important for the UK economy, have always been more heavily based on the non-EU markets. Also trade figures for goods with the EU are distorted by entrepôt trade.
About 20 per cent of British goods 'exports' to Ireland are re-exports from other countries imported through Belfast Harbour. And UK 'exports' to Belgium and the Netherlands are implausibly high and clearly distorted by Rotterdam and Antwerp port activities, though many of these exports probably go on to other parts of the EU. But in the last three months, a revolution in the orientation of British trade has taken place - with non-EU exports of goods exceeding EU exports of goods by 1.5 per cent. This is the first three-month period for which this has been so since the 1970s we believe, though comparable data no longer exists.
There was a hiccup in February 2011, when this also happened for a single month, provoking action amongst the Eurosceptic bloggers. But subsequent data showed EU trade reviving and exports to Europe from March to May 2011 exceeding non-EU exports by 19 per cent. Partly because they jumped the gun a year ago on a single month's data, the Eurosceptic bloggers have been strangely quiet this time. The latest data shows that compared with a year ago, in the latest three-months exports to the EU were down by 7.3 per cent - reflecting the euro-based economic crisis - while exports to the non-EU countries were up by 13.2 per cent; reflecting the growing markets in Asia and elsewhere.
Historically UK trade has been focused on the former colonies. This started to change in the 1960s, as the European countries recovered from the war and trade barriers came down - and Europe became our main trading partner for goods. A process that was boosted by the UK's accession to the EU in January 1973. Now, with Europe mired in economic recession and other economies growing faster, exports are reorienting themselves again towards the fast growing emerging economies.
We carried out a recent study for the insurers RSA looking at the future of the UK shipping industry. This points likely growth in UK exports to the fast growing markets in Asia and elsewhere. Over a five-year period, export growth of 30 per cent to Asia, more than 40 per cent to Latin America and above 60 per cent to Africa are predicted.
The good news for the UK is that the increasing exposure of our exports to the fast growing economies is likely over time to transform the British balance of payments. Also, imports are likely to be restrained by the ongoing squeeze on disposable incomes. Our next forecasts are likely to predict a balance of payments current account surplus in 2015, the first since 1997.
Of course, this does not in itself make a case for getting out of the EU. The cases for and against are much the same, with the EU receiving 49 per cent of UK exports of goods as they were when it received 51 per cent. Whether the UK should leave the union or not will be determined by the extent to which the EU, in the face of the readjustments caused by globalisation and the euro crisis, decides to turn inwards. That battle has yet to be fought, though there are worrying signs that Europe will turn inwards in a way that makes it impossible for Britain to remain as a member.
Scott Corfe is senior economist at the Centre for Economics and Business Research think-tank, in the United Kingdom
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COMMENTS
What a pity that the tabloids have chosen to report this as 'EU no longer the UK's main export market', which is blatantly untrue - as the rest of the world cannot be considered a single market.
Joel Peterson - Northumbria
Most EU countries have seen their global trade increase. It's not clear what 'Europe will turn inwards' actually means, especially as the EU has spent three decades at the forefront of liberalising global trade through the WTO.
Iany - London
