International Trade and the North West Economy

1
International Trade and the North West Economy

• Arup Policy, Planning Economics
• Julian Wells, Associate Director
• Fionn OSullivan, Senior Economist

2
Why focus on international trade?

• Patterns in international trade have historically
  been key to economic development in the North
  West
• An important part of the Regional Economic
  Strategy
• Action 17 Maximise opportunities from
  globalisation/emerging markets
• Action 18 Realise opportunities from
  international trade
• Impact of current economic conditions and the
  credit crunch
• No recent review of key trends at regional level
• Study commissioned by NWDA and UK Trade
  Investment

3
Study aims

• Review performance (goods and services) over last
  10 years
• Identify the contribution of trade to the North
  West economy
• GVA growth and other strategic objectives
• Identify key trends
• Main destination / origin markets
• Performance by sector
• Where the region is performing well/poorly
  compared to the UK
• Identify future vulnerabilities and risks
• Review case for policy support

4
Study methods

• Analysis of national and international trade
  environment
• Review of trade in goods data
• Estimation of trade in services
• Calculation of contribution to GVA
• Interviews with 30 exporting companies and trade
  associations

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This presentation

• How important is trade to the regional economy?
• Global and UK trends affecting the North West
• What are the key drivers of UK trade?
• The structure of North West trade
• Trade in goods
• Trade in services
• Findings from interviews with regional exporters
• Future prospects
• Questions

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How important is trade to the regional economy?
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The global picture
Source ONS
8
UK trends in exports

• Average export growth 4.4
• slower than world trade growth
• But faster than UK GDP growth
• Red trend line shows decline since 1990s
• Sharp fall in 2007 data

Source ONS
9
Slowdown in UK exports arises from trade in goods
Source ONS
10
Impact of exchange rate movements

• The rising value of sterling in the late 1990s

significantly affected the profitability of
goods exports
Source ONS
11
Relative unit labour costs

• United Kingdom

12
Key markets for UK exports and imports in 2006
Exports of goods and services

• In 2006 seven EU countries accounted for 45 of
  all UK exports (Germany, France, Ireland,
  Holland, Spain, Belgium and Italy)

Sources the Pink Book, ONS
13
The relative importance of Asia in 2006

• In 2006 UK exports to Ireland and Holland were
  92 of those to Asia in value

Sources the Pink Book, ONS
14
Contribution of different markets to UK export
growth

• Europe has also provided the main contribution to
  export growth in recent years

Sources the Pink Book, ONS
15
Value of North West exportsConstant 2003 prices

• North West in 2006 Goods 76 Services 24
• UK in 2006 Goods 66 Services 34
• Source ONS, Pink Book, Consultant estimates

16
Regional trade in Goods

• Worth 22.8 billion in 2006 at current prices

17
How goods exports have changed in 10
yearsConstant 2003 prices
18
Growth patterns comparison with the UKConstant
2003 prices
19
Destination markets comparison with the UK in
2007
20
Other trends in goods trade

• Destination trends - last 10 years compared to UK
• Matches UK performance to Europe
• Faster growth to North America and Asia
• Manufactured Goods and Machinery Transport
  Equipment under-performed compared to the UK
• Imports
• Europe provided 60 of imports by value in 2007,
  mirroring UK
• Consistent picture over last 10 years

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North West Trade in Goods - conclusions

• Larger proportion of overall exports than the UK
• Around three quarters of the total
• More heavily weighted towards particular sectors
• Organic, inorganic chemicals and pharmaceuticals
  account for half the total
• Growth patterns closely follow the UK trend
• Geographical markets closely aligned with the UK
  trend
• UK goods export performance is highly sensitive
  to exchange rates
• Current exchange rate movements likely to favour
  North West
• Significant improvement in competitiveness re.
  Europe 60 of goods exports
• Depending on economic conditions in destination
  economies

22
North West trade in services in 2006

• Worth 8.1 billion in 2006 at current prices

23
How services exports have changed in 5
yearsConstant 2003 prices
24
North West Trade in Services - conclusions

• Some differences with the UK profile
• More heavily weighted towards transportation and
  communication services
• Less intensively involved in Computer services /
  Other Business services
• Uncertainties re. estimates in financial services
• Growing more rapidly than goods exports
• Services exports less sensitive to exchange rates
  than goods
• Financial services may be particularly exposed in
  current conditions

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Additional findings from interview programme

• General optimism about future prospects
• More than 2 / 3rds of 30 firms interviewed expect
  exports to grow in future
• Key issues for all exporters
• Exchange rate movements
• Economic conditions in destination markets
• Association between exporting and innovation /
  high productivity
• North West a good location for exporting
• Good transport links (access to national ports,
  regional airports)
• Good labour pool
• No market failures specifically associated with
  the region
• No information on 2007 data on downturn in goods
  exports

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Vulnerabilities going forward

• Decline in competitiveness re. US and improvement
  re. Europe
• Potential impact of emerging economic scenario
• US moving into recession
• US slowdown and falling dollar will reduce demand
  for UK exports
• Corresponding opportunities in Europe
• High commodity prices
• Reduce demand in some countries
• Create opportunities in countries benefiting from
  boom
• Potential medium-term developments
• More difficult conditions rising inflation and
  slower trade growth
• Potential re-organisation of foreign firms in the
  region

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Conclusions

• North West trade - a good news story
• Exports are major driver of economic growth
• Chemicals, pharmaceuticals and manufacturing are
  major strengths
• Services moving the region towards the national
  pattern of trade
• Trade promotion objectives in RES are appropriate
• Challenging outlook some firms may need to
  diversify