Page 53 - Linkline Summer 2016

2016 Will be a Trickier Year for Irish Exporters
Philip O’Sullivan
Irish exporters enjoyed a very strong 2015, buoyed by very favourable currency moves and (not unrelated) sol- id economic growth in a number of key trading partners
(speci cally, the US and UK). Goods exports and imports data show that the trade surplus surged 39% y/y to an all-time high of €44.0bn in 2015, propelled by a 20% y/y increase in exports (to €111.0bn) that was partly offset by a 10% y/y rise in imports (to €67.0bn). Preliminary na- tional accounts data for 2015 show that services exports rose 10% y/y (to €110.0bn) last year.
While idiosyncratic factors pertaining to the multina- tional sector frequently distort headline export gures, a deep dive of the data con rm that last year’s merchan- dise export improvement was broad-based, with annu- al growth recorded in six of the nine major commodity groups. Currency effects played a key role in last year’s marked increase in merchandise exports to Ireland’s major non-Eurozone trading partners, the UK (+13% y/y) and US (+21% y/y).
Some 14% of Irish goods exports went to the UK in 2015. An analysis of the euro-sterling exchange rate and Irish goods exports to the UK unsurprisingly con rms that a strong pound is generally good for Irish exports, while a weak pound is unhelpful.
Thus, the cheerfulness that had prevailed in 2015 has recently given way to caginess in the Irish export sector as a sterling sell-off (from 70p in mid-November to c.79p at the time of writing) has reversed some of the gains seen during 2015.
A run of weak UK economic data and con rmation of a deferral of Bank of England monetary policy normalisa- tion contributed to the swing. Yet the main driver behind the recent sterling weakness has been a growing appre- ciation of the risk from ‘Brexit’ – the possibility that the UK might vote to divorce itself from the rest of the EU.
Without a doubt, the key event for the Irish economy this year is the UK’s referendum on EU membership in June.
The picture is similar for the US (the destination for 22% of Irish goods exports), as the euro-dollar exchange rate has moved to close to $1.14 recently from as low as $1.06 in November.
What do the polls tell us about the risk of ‘Brexit’ occurring? Some 93 opinion polls have been conduct- ed since the start of 2015. Of these, 68 saw a plurality of voters opt to ‘Stay’, 21 saw a victory for the ‘Leave’ camp and the other four ended in a tie. The average lead for the ‘Stay’ side across all of these polls is 5.7%.
The dollar has softened due to revised expectations around the evolution of US monetary policy, with mar- ket participants anticipating a more dovish outturn than the Federal Reserve has been guiding. Recent solid la- bour market and Manufacturing PMI data suggest that these expectations may need to be tweaked before long, however.
There are two factors across these polls that mer- it highlighting. The rst relates to the persistently high proportion of undecided voters (close to one in six of all of those polled since the start of last year). This creates a not insigni cant element of uncertainty given the rel- ative closeness between the ‘Stay’ and ‘Leave’ camps.
Given all of the above, it is no surprise that while the export components of the Investec Manufacturing and Services PMIs for Ireland indicate that growth continued into the New Year, the pace at which it is doing so has eased from the rates seen during 2015.
Secondly, the referendum itself may not bring an end to the uncertainty should it result in victory for the ‘Leave’ side. The mechanics around the practicalities of a Brexit are less than clear cut – there is no template for a country to detach itself from the EU – and a divorce
THE CHARTERED INSTITUTE OF LOGISTICS & TRANSPORT 51
EXPORTS IN 2016