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25 June 2014

Export Review: June 2014

Posted By: AIB Business
Export-Review-June2014-245-245

The global outlook is better than at this time last year. However, there is mounting evidence that recovery is once again proving much more intractable than most Governments and economists had expected, writes John Whelan, Export Sector Specialist at AIB.

Earlier in the year, the World Trade Organisation forecast a 4.7% global trade growth for 2014. However, the OECD numbers released in late May showed that among the group of seven advanced economies and the large BRICS economy (Brazil, Russia, India, China and South Africa), only Germany and Italy registered increased exports in the first quarter of the year.

On a more positive note, in the first quarter of 2014 agri-food exports from Ireland rose by 10%, and medical device exports increased by 19%. But the impact of the patent cliff continues to push down on pharmaceutical and chemical exports, which fell by 2%. Also, computer, printer and associated peripheral exports unexpectedly fell by 16.5%. Most commentators had expected that we had reached the end of the long run-down of the computer sector and had reached a stable export level last year. Overall, manufactured goods and agri-food exports fell by 3% in the first quarter compared to the last quarter of 2013, but a more accurate comparison is with the same first quarter figures in 2013 and, against this measure, goods exports are down only 0.4%.

The larger part of Irish exports are now coming from the Services sector, and best estimates at this point are that Services exports from Ireland in Q1 increased by 5.5%, compared to the same period last year. The main driver continues to be computer services exports, which account for 41% of the total.  

The overall export figures for Ireland in Q1 2014 are shown in the table below, and are much in line with the Central Bank and the Department of Finance forecasts for 2014. Both have forecasted a contraction of merchandise exports of 0.5% and an expansion of services exports of 6% across the year, leading to an overall increase in the value of exports of 3% for 2014.

€ Million

 Q1 2014 

Q1 2013

%Change

Merchandise

21,434

21,336

-0.4%

Services

22,800 (estimate)

21,606

+5.5%

TOTAL

44,234

42,942

+3.0%

Source: CSO for all figures except Q1 2014 services, which is an estimate

The start to the year was much healthier than last year, when first quarter exports fell by 3.8% and the GDP in Ireland subsequently contracted. However, if this year’s export growth of 3% continues, then the Government forecast of 2.1% GDP growth in 2014 is likely to be achieved.

But dark clouds are still on the horizon, and a number of unsettling geo political situations could affect Irish exports. The large emerging economies of BRICS have generally been volatile. Currency fluctuations have been exceptional and exports from Ireland to the BRICS in the first quarter of the year have fallen by 5.6%.

Of concern also is that exports to the USA fell by 5% in the first quarter, compared to the same period last year. The US is Ireland’s largest export market (taking 23% of our manufactured goods output) and has shown negative GDP growth in the first quarter for the first time since Q1 of 2011. Exchange rates have been an issue for exporters to the US, affecting the perceived competitiveness of our labour and comparative costings with non euro-zone production locations. In the current wave of mergers and acquisitions in the pharmaceutical and medical devices sector, the continuing strength of the euro versus the dollar could play out unfavourably for Irish-based facilities. The decision by the US Treasury to run down the quantitative easing across 2014 will hopefully result in a more favourable exchange rate against the euro and improve the competitiveness of exports from Ireland.

Exports to the UK, the main market for indigenous exporters, fell by 4% in the first quarter. We are now down 25% in our exports to the UK since the pre-recession days in 2008. Again, the competitiveness of Irish exports has been hit by the quantitative easing by the Bank of England, which has kept the sterling down against the euro.

Recent surveys show that exporters are staying positive about 2014. There are encouraging signs that the rate of innovation in indigenous businesses has increased substantially. Hence, despite the difficulties in Ukraine and the fall-out in trading conditions with Russia, as well as the volatile currency conditions in Turkey, India and South Africa, there are clear signs that exporting companies are balancing their optimism with flexibility and awareness of the trading risks.   


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