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Osborne’s export-led recovery: the figures don’t add up

The government is putting its faith in fast-growing economies like China and India. But most UK exports go to Ireland and other blighted economies.

George Osborne is hoping that increased exports will keep the economy growing even as government spending cuts and squeezed living standards reduce domestic demand.

The most recent data suggests that not all is going according to plan, with the UK’s trade gap (the difference between what we import and what we export) widening again in December.

But who exactly does the government think is going to start buying UK-made goods and services? Where is this boost in trade going to come from?

George Osborne has previously suggested that exports to China are a solution to Britain’s problems. David Cameron has led high profile trade missions to China and India.

In other words the government likes to talk up the potential for trade with the fast-growing emerging economies – the most important of which are the so-called BRICs (Brazil-Russia-India-China).

The problem ministers face is that while the BRICs might be growing quickly, they make up a very small share of UK trade. To see where much of UK trade is actually going, look to the other acronym popular in global economics: PIIGS (Portugal-Ireland-Italy-Greece-Spain). PIIGS refers to the ‘periphery countries’ of the Eurozone – those with severe economic problems.

This graph (data in this pdf table G1) shows the relative shares of the economically troubled PIIGS and the fast-growing BRICs in UK trade. The PIIGS are three times as important to the UK economy – indeed we export more to Ireland alone than to Brazil, Russia, India and China combined.

Share of UK exports - BRICs and PIIGs

David Cameron last week led a controversial trade mission to the Middle East. Total UK exports to Saudi Arabia, the UAE, Kuwait, Libya, Iran, Israel, Egypt and Qatar add up to only 4.7% of total exports – again less than Ireland alone!

This focus on fast-growing developing economies is unlikely to have a major impact on exports in the next few years – the years when Osborne needs a pick-up in trade to offset a weak domestic economy. UK trade with China is worth around £5.4bn to the economy. Even if it were to treble over the next four years (extremely unlikely) this would come nowhere near offsetting the £81bn of cuts Osborne is embarking on.

As the FT noted in November:

”The reliance on trade to boost the economy in the future has been a persistent feature of UK forecasts for the past decade – and they have been persistently wrong.”

There is no reason to doubt this will not be the case again.

Duncan Weldon is senior policy officer at the TUC and blogs at Touchstone.

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