something interesting

<  BACK TO Market Analysis

PIG TODAY-DEUTSCHE BANK: A weak pound won't boost Britain because 'economics have evolved since the Victorian era'

 

 

The rapid drop in the pound's value since the Brexit vote — around 15% — will hinder rather than help British exports and the British economy, according to Deutsche Bank.

David Folkerts-Landau, Deutsche Bank's chief economist, said in a note circulated on Friday that "international economics have evolved since the Victorian era" and as a result a fall in the pound won't automatically make British goods cheaper to overseas buyers.

The note is a stern rebuttal to Brexit supporters such as former Tory Leadership contender Angela Leadsom who have argued that the weaker pound will actually boost Britain but encouraging exports.

Folkers-Landau first notes that 45% of Britain's exports are services, which are typically price inelastic — people are more driven by the quality of the service than its price.

60% of services exported are finance and business related. "This is a problem, as relatively speaking financial and other business services exports are likely to be the worst hit by a less integrated relationship with the EU," Folkerts-Landau and his team write.

What about manufacturing? "World trade no longer consists of final consumption goods being bartered for raw materials," he says. "Any economy’s manufacturing exports today contain a significant chunk of value that is added abroad."

In other words, component parts central to manufacturing are often imported from abroad and those parts become more expensive when the pound drops. The UK specialises in exporting products that have many component parts — nearly 30% of its manufactured exports are machines, engines, vehicles, and aircraft.

To benefit from the fall in the pound the profit margins on these exports would have to be able to absorb the big increase in import costs of raw materials.

An economy which adds a lot of domestic value to exports, and depends less on foreign parts, could theoretically benefit from a currency drop. But the UK is not one of those economies. It adds only 64% domestic value to manufactured products. By contrast, Japan adds 82%, and the US adds 78%, according to the note from Deutsche Bank.

In fact, Britain is getting worse at adding domestic value to products, as it moves towards becoming an "assembly line" economy.

Here is the chart:

Screen Shot 2016 10 17 at 11.09.38

 

Deutsche Bank

Even if we ignore all these facts and assume the UK does manage to rebalance its economy towards being a manufacturing powerhouse, it's not clear they'll have much luck selling abroad.

Deutsche Bank writes:

"The timing of Brexit is therefore unfortunate from a rebalancing perspective. The 1990s and first half of the 2000s were the golden age of globalization with global trade growing 400% over the period. Today, by contrast, the benefits of a free trade policy look less clear cut, and the UK may struggle to establish the free trade deals it needs to offset a loss of Single Market access."

Source: businessinsider.com

 

 

The rapid drop in the pound's value since the Brexit vote — around 15% — will hinder rather than help British exports and the British economy, according to Deutsche Bank.

David Folkerts-Landau, Deutsche Bank's chief economist, said in a note circulated on Friday that "international economics have evolved since the Victorian era" and as a result a fall in the pound won't automatically make British goods cheaper to overseas buyers.

The note is a stern rebuttal to Brexit supporters such as former Tory Leadership contender Angela Leadsom who have argued that the weaker pound will actually boost Britain but encouraging exports.

Folkers-Landau first notes that 45% of Britain's exports are services, which are typically price inelastic — people are more driven by the quality of the service than its price.

60% of services exported are finance and business related. "This is a problem, as relatively speaking financial and other business services exports are likely to be the worst hit by a less integrated relationship with the EU," Folkerts-Landau and his team write.

What about manufacturing? "World trade no longer consists of final consumption goods being bartered for raw materials," he says. "Any economy’s manufacturing exports today contain a significant chunk of value that is added abroad."

In other words, component parts central to manufacturing are often imported from abroad and those parts become more expensive when the pound drops. The UK specialises in exporting products that have many component parts — nearly 30% of its manufactured exports are machines, engines, vehicles, and aircraft.

To benefit from the fall in the pound the profit margins on these exports would have to be able to absorb the big increase in import costs of raw materials.

An economy which adds a lot of domestic value to exports, and depends less on foreign parts, could theoretically benefit from a currency drop. But the UK is not one of those economies. It adds only 64% domestic value to manufactured products. By contrast, Japan adds 82%, and the US adds 78%, according to the note from Deutsche Bank.

In fact, Britain is getting worse at adding domestic value to products, as it moves towards becoming an "assembly line" economy.

Here is the chart:

Screen Shot 2016 10 17 at 11.09.38

 

Deutsche Bank

Even if we ignore all these facts and assume the UK does manage to rebalance its economy towards being a manufacturing powerhouse, it's not clear they'll have much luck selling abroad.

Deutsche Bank writes:

"The timing of Brexit is therefore unfortunate from a rebalancing perspective. The 1990s and first half of the 2000s were the golden age of globalization with global trade growing 400% over the period. Today, by contrast, the benefits of a free trade policy look less clear cut, and the UK may struggle to establish the free trade deals it needs to offset a loss of Single Market access."

Source: businessinsider.com

lastest Articles

PAMM News
Managed Forex Accounts Daily Results (21.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
USD/CAD break below 1.2850 and extends correction
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Gold capped at $1290.00/oz amid risk-on mood
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
EUR/USD upside capped around 1.1780
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Quips of Wisdom
FOREX Trading Quote: Gut feel-Marcus
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
USD/JPY recedes from tops, around 111.30 ahed of Fedspeak
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Sterling falls as dollar climbs, EU customs union concerns weigh
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Forex Today: US dollar cheers Asia risk-on, holiday-thinned trading to extend
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Market Events Ahead
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
PAMM News
Managed Forex Accounts Weekly Update (14-18.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
Dollar Rises Amid Italian Coalition and China-US Trade Uncertainty
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
PAMM News
Managed Forex Accounts Daily Results (18.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
USD/JPY fades 111.00 handle in tandem with US yields
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
GBP/USD challenges 2-week old trading range support near mid-1.3400s
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
EUR/USD tumbles further to 1.1750, fresh 2018 lows
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Quips of Wisdom
Forex Trading Quote: putting things together-Kovner
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
EUR/GBP clings to strong recovery gains, but lacks follow through
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY - UOB
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Forex Today: Yen hit a four-month low in Asia as T-yields kept climbing, risk-on likely in Europe
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
PAMM News
Managed Forex Accounts Daily Results (17.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
Gold unable to recover as USD remains strong supported by yields
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
AUD/USD bears struggle to push it through 0.75 handle
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
USD/JPY continues to move higher, inching closer to 111.00 mark
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Quips of Wisdom
FOREX Trading Quote: passion and energy-Buffet
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
Euro slips on Italian political risk and U.S. bond yield rise
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Tech Targets: EUR/USD, GBP/USD, AUD/USD, USD/JPY - UOB
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Forex Today: Sterling strongest in Asia on Brexit news, a quiet session ahead
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
PAMM News
Managed Forex Accounts Daily Results (16.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
NZD/USD counter-move to 0.6900 as the US Dollar is taking a break
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
USD/CAD stays rangebound near term – Scotiabank
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
EUR/USD tumbles to fresh 2018 lows near 1.1760
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Quips of Wisdom
FOREX Trading Quote:learning of mistakes-Livermore
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
Dollar nears five-month high on bond yield surge, euro unfazed by Italy
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY - UOB
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Forex Today: Safe-havens bid in Asia on N. Korea news, Eurozone CPI, Draghi’s speech eyed
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
PAMM News
Managed Forex Accounts Daily Results (15.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
GBP/USD bulls reclaim the 1.3500 handle amid USD profit-taking
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
EUR/USD bounces off fresh 2018 lows around 1.1820
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
AUD/USD bears back in control, hammered down to mid-0.7400s
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Quips of Wisdom
FOREX Trading Quote: plan and trade
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
Sterling recovers losses after UK employment jump
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY - UOB
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Forex Today: Aussie slips post-China data dump, UK earnings, Eurozone GDP on tap
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
PAMM News
Managed Forex Accounts Daily Results (14.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
NZD/USD under pressure below 0.6940 ahead of Chinese data
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
WTI testing daily highs around $71.00
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
USD/JPY clings to daily gains near mid-109.00s but lacks follow-through
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Quips of Wisdom
FOREX Trading Quote: the importance of methodology-Marcus
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
Euro extends gains as dollar rally loses steam
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
FOREX Tech Targets 14.05.2018: EUR/USD, AUD/USD, NZD/USD, USD/JPY - UOB
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Forex Today: Aussie outperforms in Asia, a light calendar ahead
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Market Events Ahead
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Dollar Ends Rally Awaiting US Retail Sales Data
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
PAMM News
Managed Forex Accounts Daily Results (11.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
USD/CAD stabilizing below 1.2800 handle after 70-pip boost
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
EUR/JPY above 130.50 post-Draghi speech
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
USD/JPY: Side of caution - Westpac
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Quips of Wisdom
FOREX Trading Wisdom: changing rule-Kovner
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
Sterling headed for fourth successive weekly decline after BoE holds rates
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Tech Targets: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY - UOB
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Forex Today: US dollar consolidates in Asia, a light session ahead
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
PAMM News
Managed Forex Accounts Daily Results (10.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
GBP/USD at risk of additional weakness - Scotiabank
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
EUR/USD fades US CPI-led bullish spike, back below 1.1900 handle
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
FOREX Tech Targets 10.05.2018: EUR/USD, AUD/USD, NZD/USD, USD/JPY - UOB
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Quips of Wisdom
Forex Trading Quote: painful and disheartening
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
EUR/GBP sticks to daily gains post-UK data, BoE in focus
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Gold consolidates in a range above $1310, US CPI awaited
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Forex Today: Kiwi dumped on dovish RBNZ, UK data, Bank of England Super Thursday eyed
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
PAMM News
Managed Forex Accounts Daily Results (09.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
USD/JPY: eyes on a break of 110 handle resistance to open 112 territories
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
EUR/USD could see gains extended to 1.2000/50
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
GBP/USD bulls challenge the 1.3600 handle as US Dollar retreats from highs
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Quips of Wisdom
Forex Trading Quote:your own judgement-livermore
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
USD/JPY hits fresh session tops, inching closer to 110.00 mark
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
US Dollar extends the rally above 93.00
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Forex Today: Oil and US dollar cheer Iran deal fallout, focus shifts to US PPI
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
PAMM News
Managed Forex Accounts Daily Results (08.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
AUD/USD catches a bounce as DXYU tails off
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
EUR/USD tumbles further, scope for a test of 1.1800
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
EUR/JPY bounces off lows, regains 129.50
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Quips of Wisdom
FOREX Trading Quote:do it-Pig-Insider
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
EUR/USD tumbles to fresh 2018 lows near 1.1880
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Mr. Markets
Can we survive liquidity Tsunami?
https://secure.gravatar.com/avatar/8b0332acc130dc650331fd558f82add2
Market Analysis
Forex Today: Aussie hit by poor Australian retail sales, Powell, Trump speech eyed
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
PAMM News
Managed Forex Accounts Daily Results (07.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
NZD/USD range intact amid USD profit-taking
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
USD/JPY – Japanese Yen Trading Sideway, Shrugs Off Upbeat Minutes
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Forex Market and AltCoins First Quarter Analysis
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Quips of Wisdom
FOREX Trading Quote: losing-Marcus
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
EUR/USD: Recovery mode intact near 1.1935 post-Eurozone Sentix
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
FOREX Tech Targets 07.05.2018: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY - UOB
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Asian Markets Update:China stocks lead Asia higher, lifted by commodities
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Market Events Ahead
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Dollar Keeps Going Strong as Growth Concerns Rise in Europe
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
PAMM News
Managed Forex Accounts Weekly Update (24-05.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
PAMM News
Managed Forex Accounts Daily Results (03.05.2018)
https://en.gravatar.com/userimage/34011725/cac48086660b253b9c1e53a8b4a23604.png
Market Analysis
Sterling erases 2018 gains as dollar extends surge
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
Dollar hits 2018 high despite weaker jobs data
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613
Market Analysis
FOREX Tech Targets 04.05.2018: EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY - UOB
https://secure.gravatar.com/avatar/b23a9c274f4a28b6ab7acddb98b80613