Chart for the day: Growing on Imports
Or should I say barely contracting on imports. In the traditional sense, growth in imports does not make a whole lot of sense. Normal economies import and export things, such that statistical agencies subtract the dollar amount of things that are made in other economies but consumed domestically (imports) out of their tally of spending on goods and services (GDP) in order to avoid double counting items. So if I spend $20 on candy at store in some resort town – $9 on taffy made in Monterey, California and $11 on chocolate made in Belgium – the government only counts the $9 candy made in Monterey as part of US GDP.
If imports is the sole positive growth contribution for GDP, that’s tantamount to production falling on goods and services but we don’t want to double-count the drop in spending of imported goods when calculating GDP, so it’s added back.
That’s what’s happening in the euro area. Fixed investment spending has dropped four consecutive quarters. Consumption grew in Q1 2013 but contributed just 0.04% to total growth following 5 consecutive quarters of contraction . Exports tumbled for two consecutive quarters, serving to drag growth -0.41% and -0.36%, respectively in Q4 2012 and Q1 2013. Over the last two quarters, imports has been the only consecutive positive contributor to GDP growth. Some heavy damage has been done in Europe by the austerity drive. Just thought you might want to see this.
5 Responses to “Chart for the day: Growing on Imports”
the first quarter breakdown of imports is even more stark considering that average oil prices were a bit higher then, and most of the EA are energy importers…
Europe only has one potential engine and that is exports and basically most of Europe is not competitive at this level of the euro. Euro depreciation is the only realistic avenue to provide any growth. Cutting wages is not likely in a heavily union oriented system. Remember GDP includes government spending and it should not. Government spending is 56% of GDP in France. Is this sustainable? no. Social security in France is 60% of wages with about 60% paid by the employer and 40% by the employee and the promises to future retirees cannot possibly be met. France is looked upon as part of the core; it is broke. The calculation of GDP should not include government spending; we should be monitoring the health of the private sector economy that must support growth and the government. It is obvious that the only route to real growth in Europe is massive cuts to the public sector that will continue for 50 years. Austerity is the only answer to avoid a massive collapse or hyper inflation.
they had a chance while the USA was doing QE? dollar is strong across the board today…terrible for the resource and debt oriented economy of Europe (for now.) obviously the USA would die for Germany's unemployment rate and social contract right now…but the USA does have (barely?) a unified structure of state. eh. it's too bad the EU doesn't have a gold standard because then "viva la difference" really could work. in fact this is true throughout the entire Western world in my view. gold money would solve a lot of problems here.
Notice that exports and imports are negatively correlated. That is because a lot of raw or semi-processed goods are imported, then assembled and exported. the X-M in this case properly captures the value added, just as if the retailer marked up the belgian chocolate, his value-added is added to GDP, while his costs are not.
I take the point that the awful recession is making imports collapse, but international trade is complex, so it really does need to be put into context and (X-M) is the key in terms of analyzing output and growth, even though it can be broken down into two pieces that are only partly related.
Jackstraw: The euro acts exactly like a gold standard. The EU nations are like US states or cities. They are currency users while the US, Japan, Canada, Australia, the Uk, etc. are currency issuers. A gold standard in the United States would be a disaster eliminating all government flexibility. All the gold in the world would be roughly a cube 67 feet on a side. Its value is roughly $7 trillion about one-seventh the value of ExxonMobil and all the farmland in the United States. How could you run a World economy, or a US economy, or the economy of Malaysia, for that matter, with that little amount of gold?