Scottish Exports: how strong is the recovery?

On Wednesday the Scottish Government published it latest data on Scottish manufacturing exports for the final quarter of last year. These data reveal that export growth faltered in the quarter with zero growth but volume was up by 4.8% over the year. The chart below shows that Scottish manufacturing exports still have a long way to go before they get back to their pre-recession peak. That was in the second quarter of 2008, three and one half years ago to the latest data point.

Export volumes are still nearly 6% below their pre-recession peak, with growth flat for most of last year. This begs the question: how does the Scottish export recovery compare with elsewhere?

Fortuitously, today saw the publication by the Netherlands Bureau for Economic Policy Analysis (CPB) of its World Trade Monitor: February 2012. This publication reveals that there was a slight fall in the growth in world trade in February but overall world trade volumes are now nearly 5% above their pre-recession peak in the fourth quarter 2008. That casts the Scottish export performance in a poor light. However, matters are more complicated than that. There is a clear division between the trade performance of the advanced economies - OECD countries excluding Turkey, Mexico, Korea and the Central European countries - and the emerging economies of Asia, Central and Eastern Europe, Latin America, Africa and Middle East. The figure below charts the difference:

Some interesting issues are evident from this CPB data.

First, it is generally considered that global financial imbalances were a key factor in causing the Great Recession. Many emerging economies such as China were running current account surpluses and lending their savings to advanced economies such as the US and UK who were running current account deficits. But it looks from these data that the current account imbalances worsened as the recession developed because exports fell faster/slower than imports in the advanced/emerging economies. The contraction in both exports and imports was greater in the advanced economies too. Advanced economy export volumes fell by nearly 23% from peak to trough. Contrast Scotland, where manufacturing exports fell by a little over 13% in the recession.

Secondly, the recovery in trade has been much stronger in emerging than in advanced economies. Emerging economy exports now stand around 15% above their pre-recession peak. Advanced economy exports, in contrast, are 3% below their pre-recession peak, with imports 5% below. The latter might be expected given the extent that demand has been depressed by fiscal austerity amongst other influences in the advanced countries.

The key point, though, is that the performance of the advanced economies, on average, is quite different from Scotland. Exports fell by more and recovered faster than they did in Scotland. Scotland has along with the UK had the possibility of benefitting from a lower sterling exchange rate. But it has not been sufficient to drive the recovery in export performance over much. Moreover, fiscal austerity by depressing domestic demand has not produced the switch in favour of exports that the UK government hoped for. Indeed, by weakening company performance it might have damaged their capacity to compete internationally.

There is little doubt that the performance of Scottish exports is a continuing cause for concern.

Comments

[Ian Jenkins]

"The key point, though, is that the performance of the advanced economies, on average, is quite different from Scotland. Exports fell by more and recovered faster than they did in Scotland."

Too much can be made of the yardstick of export performance. In fact a few months ago it was reported that President Obama's plan to double exports by 2014 was proceeding apace, but imports already massive were more than doubling, so the US trade deficit was growing larger.

The main concern nowadays seems to be the absence of a mechanism to stop countries cheating [mercantilism], regardless of what political rules can be agreed for the global economy.

"President Barack Obama keeps insisting that “everyone has to play by the same rules”." http://www.ft.com/cms/s/0/e01ec77e-7288-11e1-9c23-00144feab49a.html#axzz1sc6HVjsd
International financial audit must be an answer. Article 2 of the NATO treaty, for example, provides for such a check; but so far, strangely no takers.