Irish trade statistics still looking good, but…

Kevin O’Rourke has drawn our attention on a number of occasions in this blog to the collapse in world trade and its implications for the depth of the recession. Yesterday, the Financial Times reported that the World Trade Organisation was predicting a 9% drop in the volume of world goods trade this year, the largest drop since the second world war. Today, it reported that Japanese exports have halved compared to a year ago.

Against this backdrop, Irish external trade statistics have been remarkably healthy, albeit two caveats are in order. First, although Japan can report its February trade statistics today, the latest trade statistics on the CSO website (last updated 27 February) refer to December 2008. Presumably the January figures should be published in the next few days. Second, we only get monthly trade statistics for merchandise trade, even though the value of services exports is now about 75% of the value of merchandise exports, so the merchandise trade statistics only tell half the story.

The seasonally adjusted trade figures up to December 2008 are shown in the graph. While the value of exports has fallen slightly (by 1.5% between the last quarter of 2007 and the last quarter of 2008), the value of imports has fallen by much more (by over 21% between these two quarters), so there has been a significant improvement in the trade balance in recent months.

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A closer look at the composition of merchandise exports (on a quarter-to quarter basis ending in November as the December figures are not yet published) reveals a more worrying picture. Machinery and equipment exports are down 20% and other manufacturing exports are down 14%, but these reductions were offset by a continued increase in the value of exports of chemicals (which is by far the dominant export sector) of around 4%.  Chemical exports may have benefited from the slide in the value of the euro against the dollar in the second half of 2008 (from a peak of $1.60 in July to $1.30 in December).

The decline in the value of imports could reflect a decline in personal consumption expenditure (which would be a positive interpretation) or a decline in materials for further processing (which should be seen as a negative leading indicator as it could presage a reduction in exports in the coming months).  In fact, on a quarter to quarter basis ending in November, imports of producer capital goods slumped by 44%, but they make a relatively small part of the total value of imports. More important, imports of materials for production fell by 16% while consumption goods fell by just 7%. On these figures alone, we might project a corresponding fall in the value of exports in the coming quarter.

Eurostat figures also suggest that 2008 trade statistics might not be a reliable guide to what to expect in 2009. For example, EU27 exports on a seasonally adjusted quarter to quarter basis ending Dec 2008 were down only 2%, while EU15 exports were down a little more, by 5%. However, exports in the EU27.in January 2009 compared to December 2008 fell by 17%. It will be interesting to compare the Irish January figures when they are published in the next few days.

Update 29 March 2009: The January 2009 trade figures have now been published and are still remarkably positive. Preliminary January figures show the value of exports down 1% on January 2008 and the value of imports down 28%.

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