Jack Simpson looks at a record trading start to 2019, with some clear implications for policy makers.
HMRC recently published the Regional International l Trade Statistics for first quarter 2019. While the initial reading is very positive, there are some warning signs for the coming year.
The £3.5bn posted in the first quarter of 2019 (2019 Q1) represents the best start to the exporting year in recent history for the region. This represented a 7.3% export growth on the quarter (2018 Q4->2019 Q1) and a 4.2% rise on the year (2018 Q1->2019 Q1)
The EU continued as the region’s top export destination, growing quarterly by 12% to £2.1bn. In second, despite a near 15% decline, was Asia & Oceania, worth £382m, meanwhile North America continues to grow, seeing a 5% rise in exports to £358m.
The Machinery and Transport sector led the way on goods exports, totalling £1.9bn, a quarterly rise of 3.2%, followed by Chemicals, recovering from its 2018 slump to £781m, an 18% rise. A total of 2,064 companies exported in 2019 Q1, 2 more than 2018 Q4. In the North East, the value per Exporter averaged £1.7m, compared to £791k nationally.
Exports from the Chemical sector to the US continues to thrive. Chemical exports increased some £55m in 2019 Q1 (£22m in Medicinal), countering the £56m decline in Road Vehicle exports, and gradual decline of Iron & Steel exports, largely triggered by Trump’s America First policy.
The EU is overwhelmingly the North East’s biggest market. North East reliance on the EU grew by 3% in 2019 Q1, with 63% of regional exports, dwarfing the secondary markets of Asia & Oceania and North America, worth 11% and 10% respectively.
Usually I wouldn’t have a problem with this, after all, the EU is our closest trading partner, but these are unusual times. However, members report the current uncertainty around Brexit and Conservative leadership is jeopardising our relationship and undermining confidence.
As the most reliant English region on EU trade, it stands to reason that any barriers to EU trade will adversely affect the North East. It is therefore crucial that Government finds a quick, but acceptable Brexit outcome, that does not damage this precious relationship. The Chamber will continue to make the voice of the North East heard on this issue.
Regional Export Destination- EU (blue) dwarfs the market trends.
Imports stood at £3.8bn for 2019 Q1 also equalled a record high, up 1.4% quarterly and 13% annually. This resulted in a narrowing trade balance (Exports-Imports) of -£274m, a £185 on 2018 Q4, but way off the positive £21m posted in 2018 Q1.
While this growth is positive, it is representative of the unstable exporting trend. Noting the £3.4bn peak in Q4 2017, the region went through a prolonged trough, arguably caused by Brexit uncertainty and trade wars abroad, which it is now recovering from for the third consecutive sector.
To continue this growth, Government must do more for International Trade. First and foremost, providing business a stable environment to trade in, and reacting to global trader’s market concerns. Regionalising funding and strategies to Local Authorities would also allow for a tailored exporting approach, that builds on regional strengths.
Imports continue to surge since 2018 Q1, the last time the North East benefitted from a trade surplus. In 2019 Q1, the £3.8bn tally is the largest in quarterly record, and while this can indicate domestic growth, such a sharp rise (11% in two years), indicates stockpiling strategies are the most likely causes for this uptake.
Five Year Trading Trend- Imports have risen 11% since 2017, and 9% since 2018 Q2.
In the reckless build up to a No Deal Brexit on March 29th, 2019, many businesses indicated in our regional surveys and across the UK that they were stockpiling key resources to their future production, meaning they were building up stock they rely on from their foreign partners. This is now being reflected in the trading figures.
It is unclear what this will mean for the year ahead. First, stockpiling business will likely work through their surplus stock, meaning lower orders for suppliers down the supply chains. On the other hand, being forced to the cliff edge once and making significant financial commitments, it is unclear whether business will have the appetite to make such commitments again in the run up to the new Brexit date, October 31st.
So, for now, I am keeping the champagne on ice. While we should always praise the success of our region, it would be foolish to snub the warnings. Members want to see a swift resolution to the Brexit impasse, one that protects their trading relationships and while developing their global reach.
All figures sourced: https://www.uktradeinfo.com/Statistics/RTS/Pages/default.aspx