Trade with the EU is important, but is in relative decline
Date: 6th June 2016Trade with the EU is important, but is in relative decline
In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the UK’s trade with the EU and includes updates on the UK, the US and Greece.
On trade with the EU, the main points are:
• The EU share of UK exports is in secular decline.
• The goods share is falling and, whilst the services share is not falling so markedly, services are weighted towards non-EU markets and growing faster than goods, thus pulling down the overall EU share of goods and services.
• Using the conventional trade accounts, the EU exports to GDP ratio was about 12% in 2015, but on a trade in value added basis it could be as low as 9-10%.
• Given the UK’s huge trade deficit with the EU, the overall impact on GDP is negative. The overall impact of non-EU trade is positive.
• The UK runs substantial goods deficits with the EU in finished manufactures (including cars), in semi-manufactures and in food and related products (including wine).
• The UK runs surpluses in services with both the EU (20% of the total) and the non-EU (80% of the total, of which the USA was 30%).
Other points to note are:
• Recently released UK economic data suggest growth is slowing in 2016Q2, possibly reflecting uncertainty ahead of the EU referendum (23 June).
• Recently US data have been mixed. But, given the very weak labour report (May), it is unlikely the Federal Open Markets Committee (FOMC) will raises rates at the forthcoming meeting (14-15 June).
• The recent Eurogroup meeting agreed to the next tranche (€10.3bn) of bailout funds for Greece.
Ruth Lea said, “Of course, exports to the EU are important. But the EU share of UK exports had fallen to below 44% by 2015, compared with 52% in 2004. Moreover, the share can only fall further given relatively stagnant EU markets and the increasing significance of services trade, which is weighted towards non-EU markets. This is not to dismiss the importance of EU markets, but to keep them in perspective.”
For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html
Arbuthnot Banking Group PLC:
Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
Follow Ruth on Twitter @RuthLeaEcon
David Marshall, Director of Communications
020 7012 2432, 07502 285 835
Dan de Belder
020 3772 2561