The UK’s future export growth markets

By Ian Milne

The latest UN projections of working-age population indicate that UK exporters will have to look to countries outside Europe for growth.

Continental EU will be a shrinking market.

In stark contrast, most countries of the Commonwealth will experience strong growth over the next 43 years.

North America will be another fast-growing region.

Summary of UN projections

1. In future, EU countries, with one or two exceptions, will be shrinking export markets for the EU. Europe is the only continent on the planet that will suffer a drop in its working-age population over the next four decades, and, consequently, a drop in its GDP and in its propensity to import. All other continents will experience growth in their working-age populations by 2050. [Table 1]
2. Although EU26 (EU less the UK) will lose 59 million of working-age population by 2050 (more than the entire present working-age population of Germany), EFTA will gain working-age population over this period. [Table 2]
3. NAFTA will gain 67 million in working-age population by 2050. The 'swing' in working-age population between EU26 and NAFTA by 2050 will be 126 million (59 + 67 million) in favour of NAFTA. [Table 2]
4. The 54-country (ex-British) Commonwealth will gain almost a billion in working-age population by 2050, of which its most populous member, India, will account for over 400 million. After India, Nigeria (118 million), Pakistan (104 million) and Bangladesh (78 million) are the Commonwealth countries with the next biggest increases in working-age population. [Table 2]
5. By 2050, the working-age population of the Commonwealth will be well over nine times as big as that of EU26, and account for 37 per cent of global working-age population. [Table 2]

Global Vision Analysis

1. In the period 1999-2005 inclusive, UK exports¹ to countries outside the EU grew on average 44 per cent faster than exports to other EU member states².
2. On present trends, the proportion of UK exports going to the EU will shrink from around 40 per cent in 2005 to around 34 per cent by 2015. At that point, around two-thirds of all British exports will be going outside the EU².
3. Beyond 2015, demographic projections are one indicator of countries' future growth in GDP and hence propensity to import. A good proxy for the productive potential of the population is 'WAP' (working-age population) – defined by the UN as those aged 15 to 64: the part of the whole population whose work and incomes provide for children at one end of the spectrum and for old-age pensioners at the other, and which accounts for the bulk of an economy's consumer spending.
4. In developed countries the association between changes in GDP and WAP is quite strong; less so in developing and poor countries.
5. The just-published projections of WAP from the UN are a useful 'broad-brush' predictor of where export growth is likely to come from after 2015.
6. The EU as a whole, especially continental EU (i.e. EU27 less the UK and Ireland) will be a shrinking export market, losing 59 million in WAP by 2050, more than the entire present-day WAP of Germany.
7. With the exception of the UK, Ireland and Sweden, all other significant EU27 member states will experience shrinkage in WAP by 2050. By 2050, the UK's WAP will increase by 1.3 million, Ireland's by 0.9 million and Sweden's by 0.3 million.
8. By 2050, UK WAP will be almost the same as Germany's. (Today, German WAP is around 40 per cent bigger than the UK's.)
9. Shrinkage in WAP in most East European countries which joined the EU in 2004 and 2007, as well as in Russia, Ukraine and Belarus, is projected to be somewhere between disastrous and catastrophic. Bulgaria will lose 48 per cent of its WAP by 2050; Russia will lose 43 per cent.
10. In contrast, the combined WAP of the EFTA countries (Switzerland, Norway, Iceland and Liechtenstein) will increase by 2050.
11. Turkey will experience growth in its WAP of 15 million by 2050, to 63 million.
12. Europe is the only continent in the world to suffer a loss in WAP by 2050.
13. All other continents will experience growth in WAP by 2050. In that year, Asia will account for 58 per cent of global WAP, Africa for 22 per cent, Latin America and the Caribbean for 8 per cent, Europe (including Russia, Ukraine and Belarus) for 7 per cent and North America for 5 per cent.
14. Between 2005 and 2050, the WAP of the NAFTA countries (the USA, Canada and Mexico) will grow by 67 million.
15. Between 2005 and 2050, the WAP of the current 54-member Commonwealth will increase by almost a billion.
16. In 2050, the Commonwealth's WAP (2.2 billion) will account for 37 per cent of global WAP (up from 29 per cent in 2005).
17. Within Asia, by 2050, the WAP of the Philippines will reach 95 million, more than double that of the UK; Vietnam's will be 76 million.
18. Within Asia, by 2050, the following countries will lose WAP: China (a loss of 69 million), Japan (33 million), South Korea (11 million), Thailand (3 million) and Singapore (0.3 million).
19. The major net receivers of international migrants between 2005 and 2050 are projected to be the USA (1.1 million per year on average), Canada (200,000), Germany (150,000), Italy (139,000), the UK (130,000), Spain (123,000) and Australia (100,000). The countries with the highest levels of net emigration are projected to be China (329,000 per year on average), Mexico (306,000), India (241,000), Philippines (180,000), Pakistan (167,000) and Indonesia (164,000).
20. In 2050, over 96 per cent of global WAP will be outside EU26.

Table 1:
Changes in WAP [Working-Age (15-64) Population] 2005 – 2050, by Continent

1: includes Russia, Ukraine & Belarus

Source: World Population Prospects: The 2006 Revision: Medium Variant: United Nations

Table 2:
Changes in WAP (Working-Age [15-64] Population) 2005 – 2050, by economic or political grouping

1: EU27 less the UK
2: EFTA comprises Switzerland, Norway, Iceland & Liechtenstein
3: NAFTA comprises the USA, Canada & Mexico
4: The Commonwealth, a fifty-four member voluntary association, includes one NAFTA member, Canada, And two EU26 members, Cyprus & Malta

Source: World Population Prospects: The 2006 Revision: Medium Variant: United Nations

Notes & References

1. 'Exports' include exports of goods & services plus receipts of income & transfers.
2. See Appendix below.

The United Nations Population Projections
http://www.un.org/esa/population/publication/wpp2006/

The UN's demographic projections are regarded as the world's benchmark. In making its projections, the UN takes account of fertility, mortality (including the incidence of HIV on life expectancy), immigration and emigration. Its projections are updated every two years.

Appendix

By 2015, on present trends, two-thirds of UK exports will go outside EU-24

UK Exports¹ in 2015: Projected Geographical Breakdown

On present trends, by 2015

• 34 per cent of UK exports will go to EU24, another 30 per cent to the Americas [Table A-1]
• The share of UK exports going to the US will be slightly higher, at 22.5 per cent, than in 2005 [Table A-2]
• The share of UK exports going to China & India will be be significantly higher, at almost 7 per cent, than in 2005 [Table A-2]
• However, the share of UK exports taken by Asia as a whole, 17 per cent, will be only slightly larger than in 2005, because the share of UK exports taken by Japan will have shrunk [Table A-2]
• Russia will be a bigger market for UK exports than either Germany or France – though whether UK exports to Russia can continue to grow at 27.7 per cent a year is questionable [Table A-2]

Table A-1: Geographical Breakdown of UK Exports – Percentages By Value

a. Real, post-adjustment
b. Projected average compound growth rate in value of UK exports 2005 – 2015
c. EU countries in 2005 less UK
d. Comprising Switzerland, Norway, Iceland & Liechtenstein
e. Including Russia & Turkey

A more detailed breakdown by country & region is given in Table 2

Table A-2:
Detailed Geographical Breakdown of Table 1 – Percentages by Value

a. Real, post adjustment

Table A-3:
Values of UK Exports by Region @ 2005 prices & exchange rates: £ bn

# 252 divided by 526 = 48%
* 210 divided by 526 = 40%

Adjusting the ONS Data for Distortions to Recorded Trade Flows

Data on recorded UK exports¹ (Table A-3, Col 1) comes from the Office for National Statistics (ONS), in The Pink Book 2006². This is adjusted to correct for two major statistical distortions which have the effect of overstating the importance of the EU as a British export market: the Rotterdam-Antwerp Effect (involving goods and services) and the separate Netherlands Distortion (involving the earnings on UK foreign direct investment overseas – an increasingly important component of 'income')3 (Table A-3, Col 2). The adjustment assumes that the real (adjusted) proportion of worldwide UK exports going to EU24 in 2005 is 40 per cent, amounting to £210 bn (Table A-3, Col 2). This compares with the recorded (unadjusted) proportion of 48 per cent, amounting to £252 bn (Table A-3, Col 1). The difference of £42 bn is allocated pro-rata to countries outside the EU, to give the result shown in Table A-3, Col 2.

The starting point is the recorded proportion, 48 per cent, of the UK's worldwide exports going to EU24 in 2005 (Table A-3, Col 1). In years prior to 2005 the real post-adjustment proportion was calculated to be 88 per cent of the recorded proportion³. For 2005, the multiplying factor is set at 83 per cent, to take account of the increasing impact of the Netherlands Distortion, due to the share of all income taken by earnings on UK direct investment overseas (the origin of the Netherlands Distortion) being on an upwards trend⁴. The real adjusted proportion of UK worldwide exports going to EU24 in 2005 works out at 83 per cent of 48 per cent, or 40 per cent.

The Projection: Methodology

Step One of the projection to 2015 is to calculate (from the unadjusted Pink Book data²) the annual average compound rate of growth of UK exports to regions and countries for the six year period 1999 to 2005. Step Two is to assume that the same differential rates of growth will continue for the ten-year period 2005 to 2015. Those growth rates are applied to the adjusted 2005 export data (Table A-3, Col 2) to give the 2015 projection summarised in Table A-3, Col 3.⁵

Notes & References

1. 'Exports' consist of exports of goods & services plus receipts of income & transfers. These are known as 'all credits on current account' in the UK Balance of Payments.
2. United Kingdom Balance of Payments: The Pink Book 2006: Office for National Statistics, July 2006. Free download: http://www.statistics.gov.uk/ > Browse by theme >Select Theme > Economy > Go > More detailed topics for Economy > Balance of Payments > United Kingdom Balance of Payments > Pink Book 2006.
3. For explanations & discussions of the Rotterdam-Antwerp Effect & the Netherlands Distortion: see pages 182 & 183 of the Pink Book 2006; Appendices II, IV & V of A Cost Too Far ? by Ian Milne, http://www.globalbritain.org/ ; & Global Britain Briefing Note No 32, 4th June 2004, Foreign Direct Investment: The Netherlands Distortion, http://www.globalbritain.org/
4. See the Pink Book 2006, pp 58 & 59, Tables 4.1 & 4.2
5. Due to rounding, columns & rows may not exactly sum in Table A-3.

This is a projection (not a forecast) based on assumed UK export growth rates for the period 2005 – 2015, which are those actually experienced for the period 1999 – 2005. Whether the growth rates assumed for 2005 – 2015 are plausible is a matter of judgement. Note however that the assumed growth rates in exports to most countries - Russia excepted – are unexceptional.

Notes on the author:

Ian Milne has been the Director of the cross-party think-tank Global Britain since 1999. He was the founder-editor (in 1993) of The European Journal, and the co-founder (in 1995) and first editor of eurofacts. He is the translator of Europe's Road to War, by Paul-Marie Coûteaux, (published by The June Press), and the author of numerous pamphlets, articles and book reviews, mainly about the relationship between the UK and the European Union. His most recent publications are A Cost Too Far? (Civitas, July 2004), an analysis of the net economic costs and benefits for the UK of EU membership, and Backing the Wrong Horse (Centre for Policy Studies, December 2004), a review of the UK's trading arrangements and options for the future.

Global Vision is a new campaign group backed by economists and business leaders that argues for a looser British relationship with the EU, based on trade and mutually beneficial trade and cooperation, whilst opting out of economic and political union. Global Vision believes that this is the right relationship for Britain in the 21st century's rapidly changing world. For more details on Global Vision please visit our website: www.global-vision.net.