Industry struggles in face of currency growth
Britain’s annual gap reached £84.3 billion (€126.4m), the Office for National Statistics said in London.
France’s deficit widened to €29.2bn, the finance minister said in Paris. Ireland’s trade surplus for 2006 will be close to €28bn.
The deficits suggest industry in Britain and France is struggling to compete overseas. By contrast Germany, Europe’s biggest economy, reported a record trade surplus of €161.9bn for 2006 as goods exports surged, helping fuel the fastest economic growth since 2000.
HSBC Holdings economist Karen Ward, in London, said: “It is striking how much imports from countries using the dollar or pegged to the dollar are surging, while exports to these regions are suffering.
“For now, Germany seems to be doing better because of the stimulus from investment,” she said.
Britain’s deficit widened in December to £7.1bn (€10.6bn) the statistics office said. Exports fell 1.2% and imports rose 0.2%.
The Bank of England, concerned about the fastest inflation in a decade, has raised interest rates three times since August, pushing the pound up to the highest since 1992 against the dollar last month. The pound reached $1.9916, the highest in 16 years on January 23 and traded at $1.9482 yesterday.
Britain’s trade gap with the US swelled to £6.8bn in the fourth quarter as imports surged 10.5% and exports dropped by 5.7%.
“Sterling close to $2 is bound to affect competitiveness. It’s a gloomy outlook,” said an economist at 4Cast Ltd. Raj Gunaratna, in London.
In France, the trade deficit widened to €2.92bn in December from €2.67bn the month earlier, the Finance Ministry said.
The nation’s share of exports outside the euro area has dropped 16% since the single currency’s introduction, according to Morgan Stanley’s chief European economist Eric Chaney.
The euro rose 11% in 2006 as the European Central Bank raised its benchmark rate six times since December 2005 to 3.5%.
The euro traded at $1.2997 yesterday.
“The effects of the strong euro will be felt more in 2007,” said Trade Minister Christine Lagarde.
German exports have weathered the increase in the euro’s value, reaching a record 893.6bn last year, up 13.7% from 2005. MAN AG, Europe’s third-largest truckmaker, said in February that fourth-quarter profit rose 22%, exceeding analysts’ estimates.
Oil prices have almost doubled in the past three years, prompting more sales to exporters such as Russia.
“Oil prices are still relatively high, and producers are using their profits to buy German machinery,” said an economist at UniCredit’s HVB unit, Andreas Rees, in Munich. “But French companies have also simply lost competitiveness, and the euro is being used as a bit of a scapegoat.”
Mathilde Lemoine, chief economist at HSBC France, said the problem ran deeper. Compared with Germany, “Our companies invest less in innovative technology goods,” she said.
Germany’s trade boom might have peaked for now. Sales abroad, adjusted for working days and seasonal changes, fell 2% in December from the previous month, when they dropped 0.6%, the Federal Statistics Office in Wiesbaden said.
German economic growth might weaken to 1.7% this year from 2.5% in 2006, the government forecast on January 31.
Adding to signs of a slowdown, business confidence unexpectedly dropped from a record high in January. Germany’s economy might still pick up in the second half of the year, forecasters said.
“The first quarter is generally expected to be negative,” said president of the Ifo economic research institute Hans-Werner Sinn in February.
“Afterwards, growth will normalise again.”
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