Government hopes of an export-led recovery were dented on Thursday as the weakest trade figures for almost six months coincided with a warning from the World Trade Organisation (WTO) that the turmoil in the eurozone would act as a major drag on international commerce during 2012.
Official data showed the sovereign debt crisis in the weaker countries of the monetary union already having an impact on UK firms, with exports to Italy, Spain, Portugal and Greece all showing steep falls over the past year.
Labour seized on the figures from the Office for National Statistics showing that Britain’s trade gap widened from £2.5bn in January to £3.4bn in February, with officials citing lower exports of cars, capital goods and food, drink and tobacco as the main reason for the deterioration.
The WTO said growth in world trade would ease for a second successive year. It revised down its estimate of growth in global trade in 2011 to 5% and said it was pencilling in a figure of 3.7% this year.
Pascal Lamy, the director-general of the WTO, urged member states to resist the temptations of protectionism. “More than three years have passed since the trade collapse of 2008-09, but the world economy and trade remain fragile. The further slowing of trade expected in 2012 shows that the downside risks remain high. We are not yet out of the woods,” he said.
“The WTO has so far deterred economic nationalism, but the sluggish pace of recovery raises concerns that a steady trickle of restrictive trade measures could gradually undermine the benefits of trade openness,” he added. “It is time to do no harm. WTO members should turn their attention to revitalising the trading system and to ensuring such a scenario does not materialise.”
The WTO said it was basing its estimates for 2012 on a forecast that the global economy would grow by just over 2%, but stressed there were “severe downside” risks that could see even weaker flows of goods and services around the globe. These include “a steeper than expected downturn in Europe, financial contagion related to the sovereign debt crisis, rapidly rising oil prices and geopolitical risks”.
Michael Saunders at Citigroup said that exports to the peripheral euro economies – especially Spain and Italy – were already sliding. In the last three months, exports of goods in nominal terms fell by 7.7% to Spain and by 10.4% to Italy.
The collapse in domestic demand in the euro periphery is a major drag for the UK because of Britain’s close trade links. In 2011, exports to Italy, Spain, Portugal, Greece and Ireland totalled £40.6bn in goods only – 14% of total UK exports and far greater than UK exports to China and Hong Kong (£14.7bn).
The ONS said February’s trade gap was made up of a shortfall of £8.8bn in trade in goods offset by a surplus of £5.4bn in trade in services.
Over the three months to February – a better guide to the underlying trend than one month’s data – there was a small improvement in the UK’s trade performance. The deficit in goods and services in the latest three months stood at £7.6bn, down from £9.4bn in the quarter ending in November. Both imports and exports fell in the three months to February.
Excluding oil and so-called erratic items such as precious stones and aircraft, exports fell by 5.3% between January and February while imports were down by 0.9%.
Chuka Umunna, Labour’s business secretary, said: “In their plan for growth, Vince Cable and George Osborne said encouraging investment and exports was a benchmark against which the government should be judged. But last month the Office for Budget Responsibility revised down their forecasts for business investment by a huge 6.9% in 2012 with downgrades in every subsequent year from 2013 to 2016, and this month we learn Britain’s trade deficit widened on top of an unexpected fall in manufacturing output in February 2012.
“These figures are worrying and underline the difficult and uncertain economic environment in which firms are having to operate. If, as they and OBR forecasts suggest, we see slow growth throughout 2012 this would be deeply disappointing and show the failure of the government’s economic plans.”
Chris Williamson, economist at Markit, said: “Importantly, weakness in the euro zone is likely to persist for some time and, because the region accounts for around half of UK export trade, this will put a ceiling on UK export sales and therefore continue to limit the country’s scope to rebalance towards export-led growth.
Change in exports from Britain during a year of euro crisis (£m)
Feb 2011 / Feb 2012
To Greece 123 / 98
To Spain 770 / 715
To Ireland 1,417 / 1,418
To Italy 762 / 726
To Portugal 770 / 715
To China 782 / 884
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