Nemesis comes after Hubris

George Osborne (UK Finance Minister) and fellow Conservatives are wont these days to boast about the success of the British economy under his tutelage. So much so that on the eve of his current visit to Berlin, Osborne referred to Britain and Germany as the “two powerhouses” of the EU, which when added together represent the “third economic power in the world after the USA and China”.  This must come from an IMF calculation which has published 2014 nominal GDPs for the UK at $2,945,146 million and Germany $3,859,547 million, which when combined comes to $6,804,693 million. This puts “Anglo-Germany” well ahead of Japan ($4,616,355 million).  But the same could also be said of Franco-Germany and Italo-Germany.

More to the point is that Osborne presides over an economy which had a goods trade deficit of $190 billion in 2014, whereas Germany had a goods trade surplus of $237 billion.  While the UK is Germany’s third biggest customer, it is only Germany’s ninth biggest supplier (of which oil is about one third in value and declining rapidly).  In fact the Netherlands, China, France, the USA, Italy, Poland, Belgium and Switzerland are all bigger goods suppliers to Germany that the UK is.

While the entrepôt status of Rotterdam and Antwerp flatter the Netherlands’ and Belgian exports to Germany somewhat, the same cannot be said of France, Italy, Poland and Switzerland, all of whom export more to Germany than the UK does in both cash terms and proportionately as shares of their exports. For every £1 worth of goods the UK sells Germany, Germany sells the UK £2.

Even when UK and German services are included the deficit picture isn’t changed much: German service exports at $286 billion were only $5 billion less than the UK’s and increasing at 8% per annum (UK 2% in 2014/15).

Osborne should abandon his hubristic tone when speaking about the British economy lest nemesis overtake him. The UK’s current GDP growth rate is hugely flattered by the expansion of consumer credit (8% in 2014/15).  Instead, Osborne should really concentrate on managing the UK’s industrial policy.  Of all world exports Manufactures make up 52%, Fuels and Mining 17%, Commercial Services 11.1%, the balance (20%) being Agriculture, Travel and Transport.

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