Last week at the Conservative’s annual party conference, Chancellor George Osborne confirmed the government’s support for developing UK exports.
The self-imposed target – as a part of the UK turnaround strategy – is to have 100,000 more companies exporting, and a doubling of our exports to £1 trillion, by 2010.
As always with these type of announcements, there is some good news and some bad news…
First, the good news:
Some recent research shows that the signs are good for the second half of the year. The Engineering Employers Federation (EEF) recent Business Trends Survey shows export orders reaching a two year high in the third quarter of 2013, and the companies surveyed expect orders to continue to increase for the rest of the year.
To achieve the ambitious £1 trillion export target we will have to go at quite a rate, as the target equates to a required annual growth rate of 9.2 per cent from 2013. It is worth noting here that between 2010 and 2013 the contribution of net trade to growth has been minimal, and in fact, lower than France, Italy and Spain.
Manufacturing is the main component of our export trade, with over half of UK exports coming from this sector; indeed, nearly half of the SME manufacturing sector exports. Furthermore, last year, the EEF developed a strategy to look to increase, by 25%, the number of companies where exports accounted for over half of their business.
Now, the not-so-good news:
Unfortunately, the latest figures from UKTI (UK Trade and Investment) show that we are actually moving in the opposite direction to the EEF target with the percentage of these export-led firms having fallen from 40per cent in 2010, to 33 per cent in 2011 and down to 28 per cent in 2012.
The export growth target set by the Chancellor is a very high one and this is not being made any easier by the continuing problems in our main overseas markets, namely Europe and the US.
Europe – potential problems in business finance
There is a new threat to European growth according to a recent report from Ernst & Young. The European Central Bank (ECB) is planning to undertake an Asset Quality Review of 130 of the biggest European banks before taking responsibility for banking supervision.
Whilst it is expected that profitability and lending will show an increase, the report suggests the ECB are likely to increase their provisioning requirements for these banks, just as there are signs of a recovery.
This could have a crippling effect on the entire Euro region, with companies potentially starting to grow but not being able to fund said growth. This would obviously have an adverse effect on the UK seeking to sell more into our biggest market
The US – possible debt default
Not only is the government effectively shut down right now, but much more frighteningly the next vote on the ‘debt ceiling’ is due on 17th October. Most commentators are saying that it is brinkmanship on behalf of the Republicans and the Democrats but, given the intransigence of the Tea Party section within the Republican Party and their resolute opposition to the introduction of Obama Care, it might just happen that they don’t get a last minute agreement this time. The consequences for the rest of the world, very much including the UK, are enormous. If agreement is not reached, the US will default on its debt repayments, and what could be the outcomes of the world’s recognised reserve currency failing. Is this another ‘unintended’ consequence of the bank bailouts in 2008, which in my opinion created a major fracture in free market economics as we know it?
Suddenly, the World Bank has downgraded their growth forecasts for emerging markets. I’m not sure this is a coincidence.
Summary
I can see the very strong economic argument for increasing our exports but I believe it will be very difficult. One of the effects of globalisation, and the instant availability of information coming from the world wide web, is that we all suffer together. Where, in the past, it may have been a country or a region that went through some lean times, it seems that the inter-dependence on global markets means we all suffer the pain together. The strategy of deflating your currency and exporting your way out of a recession is no longer an easy option as everybody is doing it.
Given this turmoil, it makes the Chancellor’s £1 trillion export target by 2020 look some way away.
If you have any comments on this article or would like to discuss any aspect of it please contact me at john.thompson@transcapital.co.uk or on 0845 689 8750.
Image by: UKTI