Transcript Trade * A2 Economics

Trade – A2 Economics
Aims and Objectives
Aim:
• Understand the UK current account
Objectives:
• Define UK current account
• Analyse the UK’s import and export
destinations
• Evaluate the importance of the UK current
account
UK Current Account
• Measures the flow of income into and out of the economy.
Four main parts:
1) Balance of trade in goods
2) Balance of trade in services
3) Income Balance – income earned on assets overseas
minus income earned from foreign owned assets in UK.
4) Net Transfers – foreign aid, transfer to EU budget
UK Current Account 2008
£m
Export of goods
251,102
Import of goods
343,979
Export of services
170,399
Import of services
115,920
Balance of trade in goods and services
-38,398
Income Balance
Net Transfers
26,940
-13,610
Top 10 UK Export Destinations 2008
Sweden, 2.10%
Italy, 3.70%
Spain, 4.10%
China, 2.00%
USA, 14.10%
Belgium/
Luxembourg,
5.40%
Germany,
11.10%
France, 7.20%
Ireland, 7.60%
Netherlands,
7.90%
Top 10 UK Import Sources 2008
Spain, 3.10%
Ireland, 3.60%
Germany, 12.90%
Italy, 4.10%
Belgium/
Luxembourg,
5.00%
USA, 7.50%
Norway, 6.30%
Netherlands,
7.50%
France, 6.70%
China, 6.70%
Top 10 UK Exports by Commodity
2008 (£m)
Specialised Machinery
Organic Chemicals
Transport Equipment
Electrical Machinery
Industrial Machinery
Misc. Manufactures
Power Generating Equipment
Pharmaceuticals
Road Vechiles
Oil
£0.00
£5,000.00
£10,000.00
£15,000.00
£20,000.00
£25,000.00
£30,000.00
£35,000.00
Top 10 UK Imports by Commodity
2008 (£m)
Pharmaceuticals
Power Generating Equipment
General Industry Machinery
Clothing
Electrical Machinery
Office Machines
Telecomms Equipment
Misc. Manufactures
Road Vechiles
Oil
£0.00
£5,000.00
£10,000.00
£15,000.00
£20,000.00
£25,000.00
£30,000.00
£35,000.00
£40,000.00
Trade in Goods and Services 2010
Current Account Balance 2010
Current Account Analysis – General
Observations
• Fluctuations tend to be counter-cyclical, they follow
opposite course of business cycle.
Because….
• During a recovery demand for M will increase due as
domestic capacity is constrained, whilst domestic firms
concentrate on booming home markets.
• Strong GDP growth between 1997-2007 accounted for
deficit as UK consumers incomes grew, imported more.
• Opposite true in downturn.
1996-1998
• CAB improved
• Due to rapid growth of overseas markets
such as the US which led to a surge in
investment income in 1998 and exports of
services.
1999-2003
• Investment income declined following Asian
crisis and the rise in the value of the £.
• Between 2001-2003 global economic growth
slowed and the value of £ remained strong.
• Current account remained in deficit,
however narrowed due to income surplus.
2004-2006
• Balance worsened
• The increase in the value of £ against the $
was the main reason the deficit was so high
2007-2008
• Deficit narrowed by £6.1bn in 2007 and
£12.6bn in 2008.
• Trade in services and income outweighed
deficit in trade of goods.
Evaluation: Does the current account
deficit matter?
• Read the Article.
• What does the current account deficit mean
for the UK economy? Does it matter?
Plenary
• Discuss whether you feel trade with
developing countries is necessary for the UK
economy to grow.