Global trade picture looks strong for 2006

Technological advancements and a weak dollar can help exporting companies by making their products more attractive and more competitive globally. However, foreign demand is mainly determined by how much money consumers abroad have to buy goods made in the Granite State.

In particular, how fast the income of foreign consumers rises is what determines changes in their ability to spend for domestic and imported goods from international suppliers including New Hampshire’s exporters.

Granite State companies have found that strong economic growth in export-destination countries, like in the fast-growing Asian economies, is a welcome boost to their sales, production and jobs. Conversely, an economic slowdown in a foreign market, like the three-year economic slump in the euro area, holds down the growth in company exports, as foreign consumers are unable to buy as many goods as before.

In its end-of-the-year global forecast, the Organization for Economic Cooperation and Development (OECD), estimated that the brakes were put on economic growth in the industrial countries in 2005, as their national incomes increased by an annual rate of 2.7 percent, down from 3.3 percent in 2004. The OECD also estimated that global trade advanced by an annual rate of 7.3 percent in 2005, down from 10.3 percent in 2004.

How much did the weakening of economic activity in the industrial countries during 2005 influence export performance?

It was partially offset by solid gains in consumers’ income in the non-industrial countries, the so-called emerging economies, especially in Asia and Latin America. For that reason, in the first 10 months of 2005 national exports of goods increased 10.5 percent from the same period in 2004, surpassing by 3 percent the growth in world trade.

The foreign sales boom of 2005 has not spread evenly across the nation’s exporting companies. Export success at the state level depends on the relative economic health of each state’s trading partners. In 2005, the more important the markets of the emerging economies were in each state’s overall exports, the better the export success story.

During the January-October period, exports of goods from New Hampshire, seasonally adjusted, increased by an annual rate of 10.4 percent from the same period of 2004. The state ranked 33rd in export growth among the 50 states during the first 10 months of 2005.

Exports from New Hampshire’s companies fell 3.3 percent in October from September, following monthly gains of 1.1 in the previous month. At their October mark, foreign sales registered $215.7 million, seasonally adjusted, which is $7.4 million less than the volume recorded in September.

Manufactured goods overshadowed shipments abroad, accounting for 86 percent of all state exports. Foreign shipments from New Hampshire’s manufacturers were nearly flat in October, edging down by 0.1 percent from the previous month to $186.3 million, adjusted for seasonal variation.

On an annual basis, overseas sales from Granite State factories were $22.5 million, or 9.6 percent, higher than in October of last year.

Exports of non-manufactured goods went down 19.7 percent in October to $29.4 million, adjusted for seasonal variation. What are the prospects for global economic growth in 2006? In its new forecast, the OECD predicts solid growth for its members over the next two years — a rate of 2.9 percent per year for both 2006 and 2007. Its economic outlook predicts the euro area to pull out of stagnation and the emerging countries in Asia, led by China, to maintain their fast expansion path.

The OECD also predicts world trade to accelerate, advancing by 9.1 percent in 2006 and 9.2 percent in 2007. Global trade growth is expected to be nearly three times faster than economic growth in industrial countries, implying export opportunities for New Hampshire’s companies doing business abroad, especially in emerging economies.

Evangelos Simos, chief economist of the consulting and research firm Infometrica Inc., is editor of international affairs for the Journal of Business Forecasting and professor and department chair at the University of New Hampshire. He may be reached at Distributed by Infometrica Inc.

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