One of the (many) puzzling features of the UK economy is the very disappointing export performance. Despite a 25-30% depreciation of the Pound, the UK current account deficit has remained stubbornly high and even increased at the end of 2012. Essentially, the sustained depreciation in the value of Sterling has not caused an export led recovery as we might have hoped for.
However, looking at exports to non-EU countries, the situation is more encouraging.
- Since 2009, there has been a 35% increase in volume of exports to non-EU countries, with the new emerging markets in China, India and Brazil (BRIC countries) leading the way.
- Between Q1 2007 and Q4 2012, exports to China and South Korea have more than trebled.(ONS)
- Exports to China have increased by 226% and South Korea by 195%.
The ONS have stated that exports to Brazil, India, China, Russia and South Africa – the so-called BRICS have more than doubled from £12.7bn in 2007 to £27.1bn in 2012.
This suggests that away from the depressed western economies of the EU and US, UK export growth is more promising. Unfortunately, exports to BRIC countries only account for 5.6% of total UK exports. Our trade is still dominated by exports to the EU and US, which accounts for over 64% of trade. It is this weak growth in exports to the EU, which is causing disappointing trade figures. It shows the continued importance of the EU economy to the UK economy. However, this may be slowly changing as the value of BRIC exports has increased from 3% of total trade in 2007 to 5.6% in 2012. (Telegraph)
Also, as well as the direct exports, large firms are increasingly investing directly in the BRIC countries; this leads to future dividend payments back to the UK. UK company dividends for last year are estimated to have hit a record £78bn, according to Capita Registrars (Telegraph). (Transfer payments count as part of the current account).
The new global economy?
Global trade data indicate that regions, such as, Africa and the middle East, and Emerging Asia – have amongst the fastest growing level of imports. The EU, Japan and US have posted only modest growth.