U.S. exports have continued to grow and reach record levels in each of the last few years. Moreover, forecasters such as the International Monetary Fund (IMF) predict that the world economy will strengthen in the next couple of years, which should further boost U.S. exports. Today’s blog examines the potential impact of the economies of our trading partners on U.S. exports.
Following a precipitous decline during the 2009 recession, U.S. goods exports grew 21.1 percent in 2010 and 15.8 percent in 2011. However, the rebound subsequently slowed somewhat: to 4.4 percent in 2012 and 2.2 percent in 2013. As the chart below shows, growth in total U.S. exports correlates strongly with economic growth in foreign markets. As world GDP fell in 2009, the growth rate of U.S. exports dropped sharply. As world GDP rebounded the following year, growth in U.S. exports rose strongly. In the following three years, as world GDP growth eased off, so did U.S. export growth.
Simple regression analysis of U.S. goods exports and world GDP growth 1 between 2001 and 2013 yields an R-squaredii of 0.82, suggesting that about 80 percent of changes in U.S. goods export growth in that period could be attributed to fluctuations in world economic growth. The relationship between U.S. exports and world economic growth has become stronger over time: the same regression analysis covering a longer period from 1991 to 2013 produces a smaller, but still sizeable, R-squared of 0.72.
The conclusion that U.S. export growth correlates to foreign economic growth also generally holds true for specific regions. For example, regression analysis for the 2001-13 period of U.S. exports and economic growth of foreign aggregate areas results in R-squared values of 0.67 for the European Union, 0.72 for the Asian newly industrialized economies (NIEs)2, 0.83 for North America (Canada and Mexico) and 0.87 for South Americaiv. The links between U.S. exports and economic growth in North and South America have strengthened in recent years, possibly due in part to increased economic integration between the U.S. and these countries.
The European Union (EU) offers a good example of the volatility of U.S. exports when economic growth abroad fluctuates. EU GDP fell 0.3 percent in 2012 and stayed essentially flat in 2013, while U.S. goods exports to the EU decreased 1.2 percent in both 2012 and 2013. However, in late 2013, U.S. exports to the EU picked up as EU economies began to regain strength. After posting a year-to-year decline of 5.5 percent in the first six months of 2013, U.S. goods exports to the EU turned up again starting in July 2013 and registered a year-to-year growth rate of 3.4 percent in the last six months of the year.
In short, how well our exports perform may be significantly impacted by how well the economies of our trading partners are doing.
Recently, global economic conditions have been improving. According to the IMF’s forecasts, world GDPv growth is likely to improve from 2.4 percent in 2013 to 3.1 percent in 2014 and 3.3 percent in 2015. World trade volume in goods and services is expected to increase 4.3 percent in 2014 and 5.3 percent in 2015, up from the 3.0 percent rate in 2013. If these forecasts bear out, strengthening economic growth abroad and increasing global trade suggest that U.S. export growth will pick up speed in the coming years.
- 1 World GDP excluding the U.S. calculated from IMF World Economic Outlook April 2014 market exchange rate world GDP using shares in world GDP as weights.
- 2 Coefficient of determination