Important information regarding cookies
- Business Commentary(27)
- Business Start-up Support(13)
- Featured Business(75)
- Financial Support(8)
- Marketing Support(14)
Export Review: Industry Half-Year 2015
Exports hit top gear in the first half of 2015, but will the good times last? John Whelan, Export Sector Specialist at AIB, examines the trends while identifying potential opportunities and challenges for the future.
Export growth momentum continued unabated from the first quarter of 2015 through the period to June, but the question many are asking is: Will the good times for exporters continue?
The Competitiveness Council, in its recently released annual review, raises concerns about the export sector being too narrowly focused and having a weak competiveness base.
A review of the details of the export performance in the first six months of the year may give some clarity on the key competitiveness issues and the sector and country focus of our exporters.
Goods exporters expanded sales by over 16% in the first six months of the year (see Table A below). This compares very favourably with the EU average of 8% export growth in the five months to May, according to the latest Eurostat release. Services exporters also expanded sales by double digits to over 13%, exceeding the 9% growth in the sector in 2014.
The overall picture for the first six months is one of very rapid export growth across both goods and services sectors.
Source: JFW Export Analyst and CSO
The drivers of the growth have been:
- Very favourable euro exchange rates against both the dollar and pound sterling, with the euro down 17.5% against the dollar in the first half of 2015 and by 10% on average against the pound sterling. As 38% of our exports went to the UK and US markets, the currency impact on competitiveness can be major.
- Oil prices (Brent Crude) down by an average of 50% in the first six months of the year compared to the first half of 2014. This helped pull down energy costs and bolster the competitiveness of all exporters, but particularly the big consuming manufacturing sector.
- Return to growth within the Eurozone and a strong bounce back in the US economy, which grew by 2.3% in the quarter to end June, according to the July estimate from the US Dept. of Commerce.
A competitive euro exchange rate and solid economic growth in our main markets will always be drivers of Ireland’s competitiveness. The European Central bank’s quantitative easing programme scheduled to continue until the end of 2016, should ensure that at least these two primers of export competitiveness can be relied on for the next year.
Exports to US Surge, but Expansion to BRICS Remains Slow
The relatively narrow market focus by Irish exporters has been a cause of concern in some quarters. Enterprise Ireland have had this issue on their agenda for some years now, and in their latest two year strategy release they commit to helping their client companies to expand exports by 50% into the emerging markets.
A look at the target markets for Irish goods exports (in Table B below) shows a balance with what is happening across the EU. The first six months’ goods exports to the US grew by just under 23% , and continued to be the biggest market for Irish exporters – accounting for almost a quarter of all sales. The US is also the EU’s largest market and accounted for 21% of all EU goods exports, and showed growth of 22% in the five months to May 2015, according to Eurostat.
The reliance on the EU market has been reduced in the process, with 53% of total exports going to the EU internal market. This is a significant change from before the economic crisis in 2007 when 63% of all our exports went to the EU.
However, the market focus may change again over the next year if there is a continued steady return to growth within the Eurozone, where Irish exporters have increased their sales this year by 19% (see Table B).
The Achilles heel for Irish exports is the lack of substantial expansion into the large Emerging BRICS markets, where the trade slowdown is dominated by the dynamics in China. Here we diverge from our EU partners who rank China as their second largest market outside of Europe, accounting for just fewer than 10% of their exports. By comparison, China is not ranked in Ireland’s top ten export markets and accounted for less than 2% of total goods exports. Other economic shocks in emerging markets have led to trade deterioration in Russia – where sanctions stemming from the Ukraine conflict continue to impact – and Brazil’s entry into recession in 2014 as a result of low domestic demand.
|Rest of EU||1,772||2,105||+18.8%|
|Rest of World||8,797||10,104||+14.5%|
|Total Goods Exports||45,324||52,829||+16.6%|
Source: JFW Export Analyst and CSO
Agri-Food Exports Stagnate
The key indigenous agri-food export sector was affected by the fall in demand for dairy products and the consequent farm gate price stagnation. Hence, the predicted export bonanza from the dropping of the milk quotas has not materialised. The first half year exports of agri-food was under 2% which, allowing for the weakening of the euro, is effectively an export volume contraction.
Growth for Pharmaceutical, Aircraft Leasing Computer Service Sectors
On the other hand, the pharmaceutical sector shrugged off the patent cliff issues and the wave of mergers and acquisitions to record a 22% export growth in the first six months of the year.
Aircraft exports featured for the first time in the goods export statistics at €1.1 billion for the first half of the year. However, this is a technical feature of the Central Statistics Office (CSO) recording system and in fact refers to the disposal of assets by the leasing companies.
Aircraft leasing income continued to be reported in the CSO services exporting release and showed a six month 21% increase to €4.5 billion in revenue compared to the first half of 2014.
Computer services businesses – mainly multinationals – continued to lead the expansion in exports of Ireland’s services sector, with growth of 14% in the first half of the year, to take total computer services exports to €26.7 billion in the period to June.
Future Looks Bright
In conclusion, now is a good time to be involved in exporting. There are very positive indicators of continued competitiveness and strong growth in Ireland’s export sector, with:
- Recent devaluation of the Chinese yuan pushing up the value of the US dollar, making exports to our largest market – the US – more competitive, as well as improving our attractiveness to FDI.
- Crude oil surpluses forecast to continue until the end of 2016 at least, longer if the Iran sanctions are lifted. This will keep down energy and transport costs for our manufacturers.
- The UK economy official forecasts showing strong growth – good news for SMEs (particularly those in the agri-food sector) as this is their main market.
- The latest Greek bailout agreed, and the ECB quantitative easing continuing to stimulate the Eurozone, with exports to the European mainland markets expected to expand.
Written by: John Whelan, Export Sector Specialist at AIB
- Find out how AIB can help your business to expand into new markets
- Subscribe to AIB's SME Newsletter
* Lending criteria, terms and conditions apply. Credit facilities are subject to repayment capacity and financial status and are not available to persons under 18 years of age. Security may be required.
Please be aware that all of the views expressed in this Blog are purely the personal views of the authors and commentators (including those working for AIB as members of the AIB website team or in any other capacity) and are based on their personal experiences and knowledge at the time of writing.
Some of the links above bring you to external websites. Your use of an external website is subject to the terms of that site.
Allied Irish Banks, p.l.c. is regulated by the Central Bank of Ireland. Copyright Allied Irish Banks, p.l.c. 1995.