Are we really equipped for an export-led recovery?
12 April 2012
This morning’s trade figures appeared to be disappointing reading, with the UK’s deficit on trade in goods and services rising to £3.4bn in February from £2.5bn in January. January’s figure itself was an increase from a previously estimated £1.8bn deficit.
The surprise fall was a rather sharp decline in exports to countries outside the EU, falling 8.8 per cent from January to February, whilst exports to the EU actually rose slightly. That said, it is easy to get too focused on short term fluctuations, particularly in the light of continuous monthly revisions.
What really matters is the direction of travel. As my colleague Andrew Sissons argues here, with weak domestic demand, exports are going to be an essential component of any recovery. The EU, which accounts for nearly half of our total trade, can not currently be relied upon to provide a growing market for UK goods and services. Instead, we need to look further afield to emerging economies.
Within today’s release, there are potentially encouraging signs on this front – despite a fall in the month, exports to China are on a clear upward trend. The three months to February 2012 saw us export 18.9 per cent more that the three months to February 2011. Imports only rose 1.4 per cent in the same period. With our exports to Ireland being nearly twice as high as our exports to China, there is clearly great potential for growth here.
But, as the BCC pointed out this morning, in order to capitalise on potential opportunities, we need to have a workforce equipped to engage in business overseas. The BCC highlights in particular the need to develop language skills (possibly encouraged through tax credits for businesses training staff in new languages) and the benefits of social connections with overseas markets.
Without the contribution of trade to GDP last year, the economy would have fallen back in to recession. If the UK is to not simply avoid another recession, but have sustainable growth, we need to examine the skills we require to take advantage of new and emerging markets.