In 2018, four Eurozone economies will top the World ranking, in terms of new export opportunities as a % of GDP
Eurozone: The Gang of Four will lead export opportunities
This year, four of the five world export leaders will likely be Eurozone countries: Germany, Spain, Italy and…what? France!
A pickup in global demand and regional growth is expected to have boosted euro-area real export growth in 2017 (+4.7% after +2.9% in 2016). In 2018, exports should maintain up the pace, growing at +4.4%.
In 2018, exports should keep up the pace, growing at +4.4%.
In Germany, export gains should reach close to 3.8% of GDP in nominal terms. Growth acceleration in the US and France, its two largest export partners, should help German export performance.
We expect exports to grow +4.4% in 2018, as they showed continued momentum in November 2017; exports to Eurozone partners surged at their highest rate in three years.
Such dynamics have added EUR +1.7bn to the trade surplus compared to November 2016. It now stands at +EUR 23.7bn (NSA).
In Italy, exports also benefited from the global trade recovery and acceleration in the Eurozone in 2017, posting a growth of +5.2%. In 2018, we expect export growth to slow to +3.4%, with export gains amounting to 2.8% of GDP.
Despite buoyant export growth in Spain the past few years, net exports only just started to positively contribute to GDP growth in 2016, which was a cherry on top of the recovery cake.
They are estimated to have added 0.5pp (after 0.7pp in 2016) to Spain’s GDP growth rate in 2017. This year, they will add +0.3pp to GDP growth, with nominal export gains amounting to 3% of GDP.
On the imports side, total imports over 12 months surpassed their 2008 levels and the EUR300bn mark in November 2017, mainly driven by the recovery of industrial intermediate goods (+8.3% 12m/12m) and consumer goods (+6.1% 12m/12m), which testifies to stronger business activity and private consumption.
Nominal export gains as a percentage of GDP
Truth and myths about France’s exports: Trying to find a balance
Taking the above into account, France’s exports will lag behind its key Eurozone partners, even those with a lower nominal GDP (Italy, Spain), or a lower real GDP growth rate (Italy).
Belief #1: The missing SMEs:
Right. According to Eurostat, there were 400,000 exporters of goods & services in Germany and 300,000 in Italy in 2015 (last data available).
In France, estimates range from 143,000 (Eurostat) to 220,000 (latest INSEE estimate), but all point to a weakness on the part of exporters, particularly SMEs.
However, solutions exist to improve the support provided to SMEs to increase their international presence, including a single export desk. This solution is (among others) being currently discussed ahead of the planned revamping of French corporate law (a kind of Macron Law: with many targeted measures but no one-size-fits-all approach).
Belief #2: France’s exports are not that weak, but our peers are particularly strong: Right.
Export-led strategies are foundations of Germany’s (with a value chain in Eastern Europe), Italy’s and Spain’s (whose manufacturers have strong exports, particularly in the car industry) economies.
Nevertheless, France still ranks 4th in our export gain rankings. Moreover, France’ exports represented 29.7% of GDP in 2017, equivalent to Italy’s export to GDP ratio.
Belief #3: More than exports, France has a trade balance problem: Partially right.
Ten years ago, domestic demand growth was the same as GDP growth, as net exports’ growth was null.
Currently, net exports change withdraws -0.5pp per year to France. So, with +2.5% domestic demand growth in 2018, GDP growth would only be about +2%. There is probably a competitiveness issue for French manufacturers.
France will likely end 2017 with a EUR63bn deficit, according to customs (-2.8% of GDP).
But, there are two reasons to stay optimistic: (i) Customs does not take into account transactions made in France but involving non-residents, despite the trade nature of these transactions.
The Balance of Payments, however, shows a trade deficit of only -42bn (-1.8% of GDP); And (ii) Both sources show a deterioration of the trade balance by -14bn in 2017.
Out of the 14bn, 11bn can be explained by higher hydrocarbon imports (a shutdown of nuclear power plants in Q1 and higher energy consumption in November). The deficit is not only explained by a competitiveness issue.