Even with the most cynical and negative side of my persona, I cannot honestly say that I foresaw just how stubbornly weak the UK economy would remain. The double-dip recession was pretty much a foregone conclusion and the latest turndown in GDP far from a surprise. But the trade deficit hitting a 15 year high did take me a little by surprise.
There has to be some sympathy with the government of the day, when things are this bad. What seems to be staring us in the face right now is the eschaton of the economic aspirations of a generation. Talk of five, ten or even fifteen years to turn around the economic fortunes of the country seem like unsurpassed optimism right now.
Continually pointing a scolding finger at the Eurozone or suggesting that one extra day’s bank holiday in June scuppered a whole quarter’s economic growth prospects simply holds no sway. There are two fundamental reasons for the continued weakness of the UK economy: over-indebtedness of the national population; and, failure to sufficiently develop export markets in growth economies.
There is little that can be done about the over-indebtedness of the UK’s inhabitants – it is a harsh reality and nothing short of wiping-out personal debt across the nation will make consumer spending rise significantly. When times are difficult, when earning capacity is impeded, and when the future seems uncertain, each individual behaves just as the coalition government is: they reduce spending and focus on reducing their existing debt. Joe Public will not be helping the economy back to health anytime soon and with a protracted austerity economy being currently the only conceivable future, dependency on export markets becomes Hobson’s choice.
With that in mind, the biggest alarm bell rung by today’s trade deficit figures is that of the 9.6% fall in exports to non-EU countries. If an export led recovery is to take place, it has to be driven through non-EU exports. The bulk of Europe is made up from Eurozone nations, many of which are going to be on life-support systems for many years to come. The economic fragility of the Eurozone means that trade with them is bound to recede and focussing export attention there is, in all honesty, futile.
Whilst not suggesting that there is anything typical about my business, a geographic breakdown of my new customers over the last two months shows that 50% are based in the USA; 20% are UK companies; and, the remaining 30% are other non-EU countries. Add to this the fact that, with one exception, all my home-grown work has required me to actively pursue sales: in contrast, the remaining 70% of overseas customers have come to me purely as a result of my web-presence.
For the UK’s economic fortunes to turn around, the non-EU trade gap between imports and exports has to be turned around. Our export focus has to switch to the BRIC countries, the more stable Middle Eastern economies, and dare I say it (the graveyard of many a British business) the USA.
The British Chamber of Commerce’s chief economist, David Kern, is quoted by the BBC as saying: “There is no question that British exporters are facing major challenges as a result of problems in the Eurozone, but the rebalancing of the UK economy towards exports is taking too long.” It will be far longer still if British exporters do not look past the Eurozone to where the real business is.
Author: Mike Paice