Five myths holding back UK growth

When the global recession began several years ago, many experts urged the U.K. to "rebalance" its economy. The country had become addicted to growth brought about by consumer spending, they argued. Steps should now be taken to shift the emphasis towards export-led growth. This would help the U.K. mitigate the shock of any future downturn.

Today, the U.K. appears to be finally recovering—but the economy has yet to see significant increases in exports. U.K. real exports increased by a meager 1 percent in 2013, and the overall U.K. trade deficit widened to £26.7 billion ($45.7 billion), up from £23.3 billion in 2011. Yet a shift towards higher exports remains a key element of sustainable growth.

New ways of thinking can help policy leaders and executives push the economy in this direction. In my research for Accenture, I've identified five myths that are holding both companies and the government back from achieving economic growth that is better balanced between exports and consumer spending.

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Myth #1: Export-led growth requires national champions. Government-led trade missions to emerging markets often focus on promoting the market leaders in a given industry—so-called national champions. However, this preoccupation means that the export potential of many highly dynamic smaller companies gets ignored. Export promoters need to spread the word about such companies as Piccalilly, a North Yorkshire-based business that exports organic and ethical clothes for babies and children to 25 countries through its online shop, retailers and distributors.

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Myth #2: You should target the BRICs—Brazil, Russia, India, and China. Many next-tier emerging markets have growth and population dynamics that are just as compelling as those of the BRICs. For example, 27 other economies—including Poland, Colombia and Turkey—have a greater number of households with an annual income above US$30,000 than China currently has.

Myth # 3: High economic growth rates in target markets indicate export potential. By themselves, GDP growth rates tell us little about export demand. Instead, the key lies in understanding the "Engel curve"—the relationship between household incomes and consumption. This varies for every good and service. In some cases consumption will not reach a critical mass unless average incomes reach a relatively high threshold. Judging when that critical point is about to be crossed, and being able to respond nimbly, is the true skill for export-focused businesses.

Myth #4: The UK's currency is holding back an export-led recovery. It is true that sterling has appreciated against major competitor currencies in recent years. Yet good export performance is only marginally about currency weakness. Ultimately, it depends on having the right products, for the right market, at the right price. If the U.K. wants to boost its export record, the focus must be on overall improvements in productivity and competitiveness, with concerns about the pound left to the currency markets.

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Myth #5: Bigger trade flows = higher GDP. Nearly always, headline trade statistics refer to gross trade flows. These figures are highly prone to misinterpretation—they fail to take account of the value of the intermediate imports used as inputs for exports. This is especially important in today's globalized trade networks, in which the parts and components that go into a product are often sourced from many places. Viewed on a value-added basis—defined as the difference between a country's exports and the sum of intermediate inputs of goods and services imported to produce those exports—the picture looks quite different. For example, in 2009 only 42 percent of the U.K.'s gross exports to Singapore of $ 8 billion counted as value added. Contrast that with South Africa, where the value added was 86 percent on gross exports of $4 billion—meaning the knock on effect on the U.K. economy was in fact slightly higher than in the case of exports to Singapore.

Rebalancing toward a greater degree of export-led growth remains a critical need for sustainable economic growth in the U.K. If leaders can discard the myths outlined above, they can begin to take more effective steps towards stimulating an export revival to underpin the U.K. economic recovery.

Mark J. Purdy is a managing director and chief economist at the Accenture Institute for High Performance. He leads Accenture's research into a wide range of macroeconomic and geopolitical issues shaping the CEO agenda, and has published widely on topics such as globalization, international competitiveness, economic growth, and jobs.