Exports have declined
The latest export figures, for September, was 2.2% lower in cash terms than the equivalent 2013 value. Most of the decline has been from goods exports, with services exports holding steadier. The demand deficiency in the Eurozone and slowdowns in other export partners such as certain emerging markets, Russia, Japan and Canada, means that exports are likely to see slow growth in the near future.
In response to the over-dependence on the Eurozone, which in recent years has been a constraint given its slow growth rate, UK exports are increasingly directed towards other parts of the globe. This has been partly organic, because demand is growing more rapidly there, and partly conscious. A succession of trade delegations to emerging markets has upped the percentage of trade that the UK does with those economies and reduced dependence on the EU. February 2013 saw the largest British trade delegation ever go to Mumbai, followed by another smaller one in December and a third in August 2014. Another visited China this summer.
In order to become better insulated against insolvency, businesses need to be agile in where they export. Exporting towards a number of markets reduces the risk that a downturn in a major export destination can wipe out a business. Current EU trade policy bodes well for the future, as the bloc is negotiating common standards with several important overseas trade partners that will substantially reduce the cost for a business of exporting to more destinations.
While trade delegations tend to favour large businesses, SMEs hugely benefit from the harmonisation of standards with economies further afield. UK firms can automatically export to the EU in the knowledge that their products meet the standards, and that is slowly becoming the case for more and more markets globally under new trade deals (for example, EU–Singapore, EU–Malaysia, EU–South Korea and the world’s largest, TTIP). Without mutual recognition of standards, gaining approval to sell in foreign markets can be a prohibitive hurdle for SMEs. While freer trade intensifies competition and may increase pressure on some businesses, it also has undeniable benefits for many UK firms.
It also makes sense to further diversify the type of exports that the UK produces. As a global services hub, services make up a higher share of total exports than they do for other major economies. However, goods still make up more than half of its trade, as global trade is so dominated by goods. This is due to a fundamental difficulty with trading services: in some cases, physical presence is unnecessary, e.g. business services, and these services are often traded. But in many others, the cost of the service provider’s travel would make cross-border trade uneconomic. The UK’s share of goods in overall exports has fallen from over 70% in the late 1990s to just under 60% by 2013. This downward trend is likely to continue, as weak economic expansion in the Eurozone weighs down on the goods exports.
Definition: A formal default is defined as a company entering into administration, receivership, company voluntary appointment or liquidation.