EU export growth crashed to a two-year low in Q3 2019, according to new research from accountancy and business advisory firm BDO LLP.
Sliding from 98.1 in Q2 to 96.4 in Q3, the BDO Export Growth Index - which provides snapshots of the export markets in Europe’s five largest economies - declined for the second consecutive quarter, edging dangerously close to the point of contraction (95.0).
In both the UK and Germany, the Export Growth Index is now below the 95 mark, which represents zero annual growth.
The UK recorded a 2.2 point fall, pulling the Index down to 93.9. This indicates that British exports to Europe contracted year-on-year in Q3 – the first time since 2015. Between the first and second quarters of the year, the UK’s exports plummeted by 3.3%, marking the sharpest decline in seven years. With growth on a downward trajectory across all key export markets, a marked recovery in Q4 appears unlikely.
Europe’s largest economy, Germany, experienced an even more significant annual contraction of exports in Q3 – with the Index falling by 3.7 points to 90.9.
German industrial production in August was 5.0% lower than it was at the same point last year, having been hit particularly hard by the continued weakness of the automotive sector. Out of the 28 countries in the EU, only Ireland, Romania and Slovakia have seen a sharper decline in industrial output over the past year.
France, Italy and Spain performed better, but also saw growth deteriorate in Q3, with the rate of export growth now below the long-run trend in all three countries.
Elsewhere in the report, the EU Export Inflation Index fell sharply to 95.0 in the third quarter of 2019. This marks a 9.5 point decline compared to the previous quarter, and means the rate of price growth for European exports is now around zero.
Commenting on the findings, Peter Hemington, Partner at BDO LLP, said: “European export growth is on the brink of contraction having experienced another challenging quarter - and worse is still to come as car sales stall and industrial production levels limp across Europe.
“Services are particularly important to the UK as they account for 80 per cent of our economy. While the US remains Britain’s largest services export partner - accounting for almost a quarter of UK exports in that category - it is concerning to see weakened growth with our closest trading bloc. Europe imported £28.56 billion worth of services from the UK between April and June 2019, compared to £30.27 billion during the same period in 2018, suggesting Brexit has already caused notable disruption.”
To download BDO’s New Economy report and find out more visit www.neweconomy.bdo.co.uk
Overview of the BDO indices:
An overview of the Export Performance Indices are provided in the table below, detailing figures for the last four quarters, to allow for comparison.
(figures for this report)
|BDO Export Growth Index
|BDO Export Inflation Index
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The BDO European Export Indices are prepared on behalf of BDO LLP by the Centre for Economics and Business Research ltd., a leading independent economics consultancy. Cebr has particular strengths in all forms of macroeconomic and market forecasting for the UK and European economies and in the use of business survey techniques.
The indices are calculated by combining a range of up-to-date business surveys and hard economic data, from a European and country-specific sources to ‘nowcast’ annual growth in the current quarter. Using surveyed data from sources including the European Commission, IFO, CBI, ISTAT & the Bank of England, as well as trade statistics from the UN and national statistical agencies, Cebr forecasts the level of annual growth in both total exports and export prices
The surveys and historic hard data are combined and correlated against a time series of trade data, individually for export growth and export price growth. Cebr then calculates the strength of the relationship between these variables and the dependent variable, respectively export growth and export price growth for each of the two indices. The variables are then weighted together based on their correlations and strength of relationship. Using this, Cebr nowcasts the current level of export prices and total value of exports in the current quarter. While there may be some data from months within the quarter of release, a nowcasting exercise is used to project whole quarter figures.
Once a quarterly figure has been calculated, the annual growth rate from the same quarter in the previous year is derived. Finally, the growth rate is scaled into an index with 100 as the average long-term growth trend of the country and 95 as the level dividing expansion from contraction.
The process is repeated for all of the five largest economies in Europe, and the combined European Union. Long-term growth, represented by a reading of 100 in the index, is calculated at a EU level for exports and at a national level for export prices.
The results are useful not only as snapshots of the current trends in the export markets of Europe’s largest economies, but also as indicators of turning points and leading indicators of growth.
PR Manager, BDO
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