Recent research regarding Belgian exports and export market growth
This working paper gives an overview of recent research aimed at refining forecasts and analysis of Belgian foreign trade. Regarding export markets, a new leading indicator is introduced as an additional tool for assessing the growth profile for Belgium's potential export markets in the first quarters to be forecast. With respect to exports, an analysis is made concerning the considerable and partly unexplained loss of export market share in recent years. It appears that (a lack of) competitiveness plays an important role in the evolution of Belgium's export market share, but it cannot explain it entirely.
Potential export market growth is the most important explanatory variable in the export equations of the macroeconomic models at the FPB. In the drawing up of the economic budget (see also Economic forecasts 2008 in this STU), it is calculated as the weighted average of import growth of Belgium's trading partners. This is done by means of yearly data. The establishment of a quarterly profile is inspired by the monthly world trade data (both observations and short-term forecasts) computed by the Dutch Centraal Planbureau. The new leading indicator can be used as a supplementary tool for assessing the quarterly profile of the potential export market growth projection. The current version of the leading indicator contains two European indicators (Dutch consumer confidence and the OECD leading indicator for Germany) and two US indicators (the OECD leading indicator for the US and the assessment of the economic situation in the US from the IFO World Economic Survey). The fit of the leading indicator with the reference series is quite satisfactory.
A striking observation is that Belgian exports are confronted with a considerable loss of market share, i.e. a negative growth differential between exports and potential export markets. As already mentioned, our concept of potential export markets reflects the geographical composition of Belgium's exports, so that from the export market share we abstract losses due to an unfavourable geographical orientation. As the evolution of Belgian exports in recent years has appeared rather difficult to explain, the second chapter presents an attempt to improve forecasts of Belgium's exports by breaking down the current aggregate equation in the quarterly model into a goods and a services component. However, an out-of-sample simulation reveals that this approach overestimates export growth to the same extent as the current approach.
In the third chapter, we take a closer look at the evolution of Belgium's export market share by comparing it with the situation of its three main trading partners (France, Germany and the Netherlands) over the past 25 years. Our results indicate that a lack of competitiveness (measured by means of a real effective exchange rate based on unit labour costs) plays an important role in the loss of export market share, but it cannot explain it entirely. In all four countries, competitiveness appears to explain the evolution of export market shares quite well in the eighties and the first half of the nineties. Since 1995, this link has become less clear-cut for Belgium and France. Belgium posted gains in competitiveness in the second half of the nineties while it experienced its strongest losses in market shares. France experienced huge competitiveness gains in the second half of the nineties, yet still lost some market share. Since the beginning of this decade, the development of both countries' export market shares seems to be more in line again with competitiveness. Nevertheless, structural factors (the export product mix and the role of re-exports) as well as statistical factors (breaking up exports into a price and a volume component) are likely to have affected export performances, especially in Belgium.