Stephanie Flanders writes about (among other things) the risk to UK exports posed by the slowing eurozone economy.
Germany seems to have had no growth at all, the Italian economy shrank by another 0.2%, and Spain by 0.1%. Between them, those three countries accounted for 15% of UK exports in 2008.Sounds terrible. But wait, there is a little bit of good news to partly make up for it:
British exports to China were 53% higher last month than in January 2009. But they start from a very, very low base: just 2% of our exports went to China in 2008.
In total, about 12% went to the Brics - with about 75% going to advanced economies, primarily the the US and the EU.
Solid growth in Europe is a necessary condition for a healthy recovery in the UK. So the latest weak numbers from across the channel have given the MPC one more reason to keep the door to further quantitative easing wide open.So from reading the conclusion you can clearly infer that British exports will continue to decline until Europe revives, right? China might slow the process down but can't make any real difference. Not so fast.
A drop of arithmetic shows this to be incorrect. If exports decline in line with GDP*, the 0.08% fall in total GDP of the three EU countries mentioned, multiplied by the 15% share of exports that they represent, means a decline in British exports of around 0.012%. That's about one in ten thousand, or a £120 decline for each million pounds of exports.
On the other hand, exports to China have increased 53% - yes, from a small base of only 2%, but still - that change is a whole 1.06% of British exports.
That is, the increase in exports to China is ninety times greater than the likely fall in exports to the three shrinking EU economies.
So while I certainly support the call for more quantitative easing, let's not pretend that the reason is to make up for a lack of growth in exports to the EU. There are much more important things to worry about.
* it's true that trade tends to decline faster than GDP. But even if it shrinks three times as fast, the Chinese growth is still thirty times greater than the reduction from the countries Stephanie names.