The balance of payments for a nation is simply the difference between the costs of the goods and services it exports minus what it imports from other nations. It is an important figure, but in needs to be considered in the context that a nation’s domestic economy is usually the dominant term in its economic equ
ation. For instance, something like 70% of US economic activity stems from domestic consumption.
Trade balances on either side of the Atlantic are currently showing disparate fortunes with America’s trade gap widening whilst that of the UK has narrowed.
The balance of trade in the USA deteriorated by 0.2% in August over the July figure to $42 billion (meaning that the US spends $42 billion more on imports than it makes on exports). Analysts had anticipated that the figure would come in at the $44 billion mark, so performance has been better than anticipated. However, the figures reveal that both exports and imports had declined (by 1 and 0.8%, respectively), providing further evidence of the slowdown in the global recovery that we’ve seen all year.
US exports to Europe have dipped to their lowest level since October 2007 as the continent deals with the sovereign debt crisis and a second recessionary wave in a number of countries.
In the UK, the trade gap narrowed significantly in July to £1.5 billion from £4.3 billion the previous month. Increased exports of oil to the rest of Europe made a significant contribution to the improvement. Exports saw a 9% hike whilst the value of goods that the UK imports slipped by 2.1%. The figures probably reflect a correction from a particularly bad set of data for June. The UK is currently in an economic recession.