If Latvians want to maintain their living standards, they should be quick to increase their exports twice the current volumes, just to maintain the "status quo" http://en.wikipedia.org/wiki/Status_quo. See our latest post on Latvian foreign trade here: http://thefrugalplain.blogspot.com/2009/01/latvian-imports-dive-19-on-month-in.html . But, if there are any wishes for even better life, then even more ...
Almost every politician (and many economists too) have the magic of "export promotion" on their lips all around the world today. This sounds easy and very rational, like from a textbook, but the real world may be much more different.
Very simplified explanation of economics: much larger imports of goods and services than the exports result in foreign trade deficit, that usually also turns into current account deficit, more detailed and precise here: http://en.wikipedia.org/wiki/Current_account_deficit. Current account deficit should be financed that usually occurs via borrowing. At some stage the current account deficit may grow so large that it is unsustainable to finance it, especially difficult it becomes during the financial crisis like the current one. So, at one stage you may be able to import only so much that is equal or even less than exports ...
Last week we saw latest export data by such global export powerhouses like Germany (capital goods), South Korea, Taiwan (both electronics specialists) ... and, as Brad Setser wrote on Sunday (see full post here, it is really worth reading, including comments: http://blogs.cfr.org/setser/2009/01/11/this-really-doesnt-look-good/ ):
Words don’t really do justice to the brutality of recent downturn ...
Taiwan exports in December down 42% year on year ...
South Korea' s exports down 17% year on year ...
Even China, the global manufacturing site, records negative 2.8% year on year development in December, that was +19% year on year still in October, see chart below, courtesy of Reuters:
Germany, the global export powerhouse of capital goods, is publishing manufacturing order data, that are already down more than 25% from the peak ...
Nice charts by Danske here: http://danskeanalyse.danskebank.dk/abo/Germanyindustrialorders080109/$file/Germany_industrial_orders_080109.pdfEven China, the global manufacturing site, records negative 2.8% year on year development in December, that was +19% year on year still in October, see chart below, courtesy of Reuters:
Germany, the global export powerhouse of capital goods, is publishing manufacturing order data, that are already down more than 25% from the peak ...
Japan recorded largest ever drop in exports in the November - astonishing 14.5% on month! Danske has short coverage here: http://danskeanalyse.danskebank.dk/abo/Japantradebalance221208/$file/Japan_tradebalance_221208.pdf
And then, at the end of day one should start wondering - what happens when everyone is here just to promote the exports? Should I damp too?
Even the most desperate suspects (with certain advantage) in the "global competitive devaluation" race - the U.S. - are the victims of exports tumbling 5.8% in November (month on month), after the 2.3% cut in exports in October ...
Well, but the surplus countries start to feel the pain, as the capacity is there, but demand has collapsed. At the end they may be even bigger victims of economic crisis than the "bad behaving" deficit countries? Michael Pettis has something to say about that here: http://www.rgemonitor.com/asia-monitor/255071/as_deficit_countries_contract_can_surplus_countries_be_far_behind .
Chinese exports by destination and imports by origin, chart courtesy of Societe Generale:
Blind promotion of exports may be costly exercise...?
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