West Midlands goods exports to outpace Germany, but Britain still faltering in race for growth

13 August 2013

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  • EY launches UK Goods Export Monitor
  • West Midlands goods exports forecast to grow by 8.1% from 2012 to 2017
  • UK goods exports set to decline in four out of five of UK’s largest markets
  • Automotive, engineering and pharmaceuticals driving growth

The West Midlands has moved into the fast lane in the international race for growth, with goods exports set to grow three times faster than Germany’s, according to the EY UK Goods Export Monitor, launched today.

The study – which tracks international goods export data by region, sector and trade routes over five years – shows that goods exports from the West Midlands are forecast to grow by 8.1% from 2012 to 2017, compared to a 2.3% rise in German goods exports. The East Midlands, South West and Yorkshire & Humberside are also topping the UK’s regional annualised growth table.

However, EY cautions that Britain is still battling to take a lead in the international race for growth. Based on real term data, the analysis finds that while UK goods exports are growing – they are not growing fast enough. The study forecasts just 0.3% annualised growth in UK goods exports to 2017, far behind the 1% European average. This is in part driven by a predicted decline in UK goods exports to four out of five of the country’s largest trading partners: USA, Germany, France and Ireland [Figure 1].

Mark Gregory, chief economist at EY, explains: “Our analysis suggests UK goods exporters are lagging behind the wider UK recovery. We are seeing a decline in demand from our traditional large trading partners for UK goods to 2017. The US is starting to re-shore some of its manufacturing capabilities and competition from countries like Mexico, Malaysia and Poland, particularly at the nuts and bolts end of manufacturing, is increasing.”

He adds: “However, UK goods exports are still growing, particularly into fast growth markets like Brazil (7.6% to 2017) and China (6.9% to 2017) – they just aren’t growing quickly enough to meet import demand. Now that confidence in the UK appears to be turning a corner, goods exporters must stop treading water and manoeuvre into the fast lanes to growth, mirroring the success of our most buoyant sectors, which have benefited from having very targeted export strategies.”

The data shows that growth in UK goods exports is forecast to be outpaced by import demand in nine out of ten of our fastest growing trade routes [Figure 2]. EY says there is a big opportunity for businesses with the appetite to re-orientate themselves towards these markets.

Looking out to 2017, the automotive, engineering and pharmaceutical industries are all expected to lead growth in UK goods exports into new trade corridors, with a focus on high-end, specialist products, according to the data.

Steve Varley, chairman and UK & Ireland managing partner, EY, comments: “While the UK services sector remains the principle engine of recovery, goods – which account for nearly half of all UK exports – still make a vital contribution to the economy. There is a once in a generation opportunity for UK goods exporters to help reshape the recovery, tapping into the sharp end of truly global supply chains, like pharmaceuticals, and made-in-Britain heritage brands.”

West Midlands boosted by non-EU trade corridors

The study found significant regional variance in the UK, with the West Midlands emerging as an export powerhouse. The area is on track to grow goods exports faster than any other UK region by selling high-end engineering far outside Europe, with annualised growth in engineering goods exports of 4.8%, worth £6.9 billion in 2017, compared with £5.5 billion in 2012.

The East Midlands is following this trend, with forecast growth of 6.1% by 2017. The largest UK goods exporters, London and the South East, are failing to match this rapid growth. Wales is forecast to be the UK’s worst performing goods exporter with forecasts of -3.1% between 2012 and 2017 [Figure 3].

Sara Fowler, Midlands’ senior partner, EY, comments: “Although the Midlands region remains behind London and the South East for total value of UK goods exports, it is the biggest regional winner by speed of growth.

“The Midlands has set the gold standard for UK goods exporters, demonstrating the benefits of a targeted export strategy. Over the last 15 years the region’s goods exporters have invested in competing at the niche manufacturing end of the automotive and engineering sectors and this is now paying dividends. Targeted investment has created enormous opportunities for fast growth, with China now the region’s second largest export partner, according to HMRC. This is also a sign of a rebalancing of our economic strengths outside London.”

Fast lanes to growth

The study shows automotive, engineering, oil and gas and pharmaceuticals at the core of UK goods export growth over the next five years. But sector-specific strategies are needed across all industries where there is a significant opportunity to meet the demands of some of the world’s fastest growing economies.

Automotive driving growth in China and South East Asia

UK automotive exports to China are expected to grow 11.6% – outpacing overall market growth (9.9%) – making it the UK’s top automotive trading partner by 2017.

The study also shows the UK breaking into South East Asian automotive supply chains. UK exports of personal vehicles to Thailand are expected to rise from $302 million in 2012, to $617 million by 2017, with the UK capturing a 53% share of the entire import market. According to the data, UK exporters could emulate this success across South East Asia by increasing their existing share in rapidly growing automotive markets, particularly Malaysia and Indonesia.

Engineering success in the Middle East

The Middle East presents a key opportunity for UK engineering, with firms claiming an increasing share of UAE imports, rising from 7% in 2012 to 8.1% in 2017 at a value of $2.5 billion. The UK’s high-tech success is expected to continue over the next five years, with growth in turbo jet exports to Qatar alone forecast to grow from $273 million in 2012 to $481 million in 2017.

Oil and gas firms head to Latin America

Major oil and gas trade corridors to Latin America are revealed. UK exports of crude oil and petroleum to Chile are forecast to rise from $397 million in 2012 to $771 million in 2017. While non-crude oil exports to Brazil are set to swell from $123 million in 2012 to $198 million five years later. Non-crude UK exports are also rising to both Colombia (18.2%) and Chile (16.2%) with a combined forecast value of $62.6 million by 2017.

Biopharma opportunities in China and Latin America

The UK pharma sector, whilst historically strong, is losing market share with Western trade routes, as out-of-patent drug manufacturing booms in Asia.

The report shows the importance of high-value patented drugs in combating this decline. UK biopharma exports to China are expected to double from $52 million in 2012 to $104 million by 2017. The opportunities in this area are staggering, with Chinese biopharma imports set to rise to $2.5 billion by 2017 (from $1.4 billion in 2012).

Latin America is another key area for biopharma, with rapid growth in Argentina (from $568 million in 2012 to $925 million in 2017) and Venezuela (from $432 million in 2012 to $760 million in 2017), where the UK is already performing well.

Gregory concludes: “The UK economy is starting to show early signs of recovery, but growth in exports remains subdued. There is clearly some buoyancy in the UK goods exports market –but some of the traditional global trade routes which the UK has historically partnered with are reaching their sell-by-date. Trading with rapid growth markets today doesn’t necessarily mean doing business with the BRICs. Some real sweet spots of demand for UK products are emerging for automotive to Thailand and China, and engineering to Hong Kong, Saudi Arabia and Poland. With UK regions like the West Midlands well positioned to benefit from this.

“Global supply chains are starting to shift. China has developed its own Asia-wide supply chains with countries like Indonesia and Malaysia, and Poland is now emerging as the China of Europe, with Mexico becoming North America’s equivalent. Rather than take a blanket approach to export strategy, companies and policy makers need to examine trade at a corridor level based on where our biggest growth sectors can reap the greatest rewards.”