Our export prospects can burn bright - as long as we dodge a no-deal Brexit Posted by David Smith at 09:00 AMCategory: My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt. What will lift us out of the doldrums, this period of very weak growth and flatlining productivity Britain’s economy is stuck in? It will not, I judge, anything to do with Brexit. A survey of economists by Consensus Economics shows an average expectation of 1.35% growth this year and next, even in the context of a “smooth” Brexit; leaving under a withdrawal agreement, A no deal Brexit would see growth drop below 0.5% next year, according to the survey, which was carried out among the 37 economists on Consensus’s UK panel, a prediction that is likely to encompass a
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Our export prospects can burn bright - as long as we dodge a no-deal Brexit
My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.
What will lift us out of the doldrums, this period of very weak growth and flatlining productivity Britain’s economy is stuck in? It will not, I judge, anything to do with Brexit. A survey of economists by Consensus Economics shows an average expectation of 1.35% growth this year and next, even in the context of a “smooth” Brexit; leaving under a withdrawal agreement,
A no deal Brexit would see growth drop below 0.5% next year, according to the survey, which was carried out among the 37 economists on Consensus’s UK panel, a prediction that is likely to encompass a technical definition of recession – two consecutive quarters of falling gross domestic product. Some are rather gloomier than that. Even the most optimistic outcome, no Brexit at all, only lifts growth to an average of 1.63% next year.
Confidence in the political system has been badly damaged – and a dispiriting Tory leadership contest has made things worse – so while there is certainly plenty of pent-up investment as a result of the clouds over the economy of the past three years, businesses will be cautious about unleashing it until they are sure they are on solid ground.
The backdrop to this malaise is that we are in a period of rapid technological change which ought to be having a positive effect on growth and productivity. Machines can do things better than ever and we have barely scratched the surface of what they may be able to do in the future.
A couple of decades ago, fewer than 10% of UK households had internet access, and clunky dial-up access at that, smartphones and tablets were yet to appear, and the vast majority of communications were by surface, or “snail” mail.
In two decades time, we will regard the way we live now as quaintly old-fashioned.
Artificial intelligence and robotics will be the norm, as will driverless, low-pollution cars. Driving a diesel or petrol car will seem as anachronistic as smoking in the office does now. And there will be technological changes which at the moment are only twinkles in the eyes of futurologists.
Technology can and should be an important driver of productivity, and thus prosperity, and as new research to be published this week demonstrates, an important driver of trade. Trade and economic openness is, of course, one of the ingredients of rising productivity and prosperity.
KPMG, in its Economic Outlook, due to be published this Thursday, devotes a special section to technology and trade. As it describes it: “Investment in innovation and technological change can drive a step-change in trade and an acceleration of trade growth in post-Brexit Britain.”
It looks at three scenarios, which it describes as “technology convergence” – its central scenario – the more optimistic “high connectivity” and a less promising “robotics and reshoring”.
To summarise these in brief, technology convergence will mean lower transport costs, widespread use of 3D printing, fully-automated and vertically integrated manufacturing and an increasing share of services in global trade, which will benefit Britain, which has a competitive advantage in services.
High connectivity, according to KPMG, implies “advances in communication technologies, such as the internet of thing …. advances in mobility and autonomous transportation lead to lower costs and greater efficiency in logistics … service sectors would benefit too, particularly from improved digital communications, service would increasingly become more tradable”.
As for robotics and reshoring, the least optimistic outlook, this would allow the use of technology, including £D printing, “to move the production of customisable components closer to their customers as digital information flows replace the transport of manufactured goods”.
All three offer considerable promise for exporters, even in the context of Brexit, according to the research. Export volumes to the Asia-Pacific region over the period 2019-50 would average 3.9% a year under the low scenario, 5.5% under the central outlook and 6.6% under the high scenario. For exports to North America, the figures are 1.8%, 3.1% and 3.8% respectively. For Europe, under the assumption of a smooth Brexit which does not hinder trade they are slightly better, 2.2%, 3.4% and 4.1% respectively.
There is, then, a potentially good story here when it comes to the outlook for Britain’s trade. Total trade, UK exports plus imports, is predicted to rise from £1,200bn now (in constant 2016 prices) to £1,800bn by 2030 and £4,000bn by 2050 under the central scenario. The more optimistic outlook would have trade rise to £2,100bn by 2030 and £5,400bn by 2050, while even in the version in which trade is not as open, there are increases to £1,600bn and £2,500bn respectively.
That is the potential and with a fair wind, which KPMG describes as businesses embracing “the opportunities stronger trade will provide”, it is possible, even at a time when protectionism is rife and the talk is of “de-globalisation” to be upbeat. British business, it should also be said, has not always taken advantage of the trade opportunities on offer.
There is a “but” in this research, as you might expect, and sadly it mainly takes us back to Brexit. There has been a tendency, including among Tory leadership candidates who mainly show scant understanding of these things, to think that managing the adverse consequences of a no-deal Brexit are all about avoiding empty shelves in supermarkets, shortages of drugs, a terrible autumn and winter for Britain’s farmers and 17-mile queues at Dover.
That is not the issue, or it is not the only issue. As the KPMG analysis shows, if we blunder into a no-deal, or what its proponents like to call a WTO (World Trade Organisation) Brexit, there will be a setback for UK trade that ;last decades.
Under a “WTO” Brexit, the volume of trade would fall initially and, by 2030, be only the same as in 2018; so more than a lost decade for international trade. On all scenarios, trade is significantly lower by the middle of the century as a result of a no-deal Brexit, by between £700bn and £1,600bn, depending on which scenario occurs.
This is serious long-term damage for something that we could slip into by accident in just a few months’ time. To return to the Consensus Economics survey I started with, economists think there is a 32% probability of a no-deal Brexit, 35% for exit under an agreement and 33% for Brexit not happening at all. Given the potential long-term damage to Britain’s trade, the chances of a no-deal Brexit are rather too high for comfort.