(click to enlarge)
Friday, 11 November 2011
ULC and trade deficits
If I focus on ULC in manufacturing (as opposed to total economy) and the trade balance in goods (as opposed to goods and services) I see a strong correlation. It is also interesting to observe that Germany stops to be the outlier in cost dynamics (again for the manufacturing sector).
(click to enlarge)
(click to enlarge)
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Dear Francesco, Could you please elaborate? It looks very interesting... Thanks, P
ReplyDeleteCould you please provide us a more detailed explanation and consequences of your thoughts? Thank you very much.
ReplyDelete@ Pedro & Morcego
ReplyDeleteSorry for the late and short reply. Ok my post was short I had hoped that a detailed graph would be sufficient, but here are my thoughts:
- the fundamental problem of euro imbalances is cost misalignment (transitory and/or permanent) that lead to persistent trade deficits
-there is some discussion on how to measure "costs". the Euro plus pact focuses on ULC. However it is difficult to find a tight relationship between ULC for total economy and Trade deficits
-well if you focus on ULC for manufacturing and trade deficits you find a very strong a positive relationship (the more costly you are he higher is your deficit)
- Attention: this does not mean that ULC in the non tradables are not important! at the contrary, increasing ULC in NT can feed through higher prices -> higher wages -> ULC manufacturing. (but not always from the graph, look at Finland)
- Achtung: in the manufacturing sector Germany is not anymore the out layer in ULC dynamics (as opposed to total ULC).
in the next post I'll try to decouple compensations from productivity dynamics