Friday, November 05, 2004

In the grand scheme of things, the US trade deficit with the UK isn't enormous. The balance through the first six months of 2004 was -$3.6bn; in comparison the trade deficit with Japan was -$31.9bn. That being said, the US actually ran a small trade surplus with the UK as recently as 2001:III since which it has ballooned. Once one of the few US success stories in terms of trade, it's now one of the many failures. With UK growth flagging dramatically, it promises to be a larger and larger contributor to the overall US trade deficit.
Britain�s industrial production and manufacturing output fell further than expected in the third quarter, official data likely to trigger a downward revision of the country�s GDP figures.

Overall industrial production fell for the fourth month in a row in September, by 0.4 per cent, and has dropped by 1.4 per cent in three months to September. Manufacturing output rose by just 0.1 per cent in September, translating to a slump of 1.0 per cent in the third quarter.

Production was even weaker than the Office for National Statistics had expected in estimating third quarter GDP: statisticians were betting on a fall of 1.1 per cent.

�This is [a] surprisingly negative number on the industrial side that could lower what was already a weak GDP estimate,� said John Butler of HSBC.

The September fall in industrial output marked �the longest period of consecutive monthly declines since the first half of 2001, during the height of the global industrial recession,� Mr Butler said.

The lower than expected production figure might dent estimates of economic growth in the third quarter by 0.05 per cent, said Andrew Walton, ONS statistician. The current estimate is 0.4 per cent, much lower than in previous quarters. The final GDP figure for the third quarter is due out on Nov. 26.

Malcolm Barr, UK economist at JPMorgan Chase Bank, said the drop in output could be enough to pull GDP growth down to 0.3 per cent in the third quarter.
This has important implications for the euro region as well. The UK plays a role vis-a-vis the eurozone similar to that played by the US vis-a-vis East Asia: goods and services vacuum. As UK growth and consumption slows, even below that of the eurozone, eurozone exports will slow as well, leading to more glut on the global market.

This becomes only exacerbated by the euro shooting to its all-time high and promising to only rise further in the coming months. How long until the Europeans get sick and tired of nobody buying their exports?


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