An Export Led Recovery? Don't Hold Your BreathGene Koretz
A trade surplus with Europe last year, the decline in the dollar, and some recent positive trade numbers are raising hopes that a buoyant external sector will help foster a near-term economic upturn. A growing number of economists, however, are skeptical about the chances of an export-led recovery.
Economists Richard B. Hoey and Helen Hotchkiss of Barclays de Zoete Wedd Inc. point out, for example, that U. S. export growth has actually been slowing steadily (chart). They note that though real exports expanded by a respectable 7.6% last year, most of the growth occurred in the first quarter, with the pace falling to only 4.3% through the rest of 1990. Indeed, without a fourth-quarter surge in oil and chemical exports related to overseas demand sparked by the gulf war, real exports would have crept up at a minuscule 1.8% annual rate during the final three quarters of the year.
Writing in Citibank's Economic Week, economist Sandy Batten observes that exports account for only 15% of America's gross national product. Further, he doesn't see "any combination of countries that will suddenly want to buy a great deal more from the U. S. in 1991."
The Anglo-Saxon countries--principally Canada and Britain, which together import 28% of U. S. exports--are in recession, Batten notes. Most nonoil-producing developing countries, which account for a further 22% of exports, have been battered by domestic austerity programs, an inability to borrow overseas, and the impact of soaring oil prices. The once-buoyant newly industrialized countries of the Pacific Rim are losing steam. And many Western European countries are slowing sharply in the wake of Germany's tight monetary regime.
Even if the world's two healthiest economies, Japan and Germany, remain robust, Batten calculates they would have to boost their appetites for U. S. goods by 38% in real terms this year to generate a 1% rise in America's GNP. "Since both countries have adopted restrictive monetary policies, and Japan's growth is already decelerating," he says, "their demand for U. S. goods is more likely to fall than rise." In fact, U. S. exports to Germany have slowed lately.
The upshot: U. S. export growth in the months ahead is likely to be sluggish. However, the trade deficit is almost certain to shrink at the same time, since America's far larger volume of imports has been slowing even more sharply than its exports. "Because the import slowdown reflects slack demand for all goods, foreign and domestic, the net positive effect on the economy is likely to be negligible," says Batten.
Indeed, Hoey believes that sluggish export growth will not only tend to moderate the economic upturn he expects later this year, but will be initially offset by an import surge as domestic demand recovers.