The Irish economy is undergoing a very large contraction this year. The major source of the decline is the contraction in domestically-orientated activities. It is true that exports are also falling – but it is important to put that into a global context. The graph below shows projected export growth for 2009 for a range of countries (OECD projections, except Ireland where it is last week’s Central Bank forecast). In a cross-country comparative context, the global trade shock is bigger for many other countries. (However, a given decline in export growth has a bigger impact here than in many of these countries, in view of our high export share in output.) One reason is that we do not produce the types of durables and capital goods that have taken the biggest hit in terms of cancelled orders and so on.
19 replies on “Ireland and World Trade”
Surely the context is that while the Irish economy “grew” from 2002 to 2006, exports peaked in 2002 and have remained below 2001 levels ever since. Fianna Fail policy cut the economy to suit a speculator’s cloth.
Very thought provoking! A very useful contribution to the debate. It proves the point that tax is driving these exports. These are likely to be brittle: once the industry is no longer profitable, it will disappear to another jurisdiction. On the other hand, if we can attract profitable industries that will still be profitable after current wages, discounted by say 10% apply, then exports might even increase. Ireland can be a beneficiary of the globalization scam.
These industries should be identified.
Banking is not one of them.
Yes, they seem to have forgotten the avian that lays the yellow metallic yolk sac……
But their friends are much more generous… were much more generous.
On a slightly related topic, the WAIPA (World Association of Investment Promotion Agencies – i.e. IDA and its counterparts) noted in its latest bulletin that parent companies may be enticed to repatriate more profits now than in the past to ease liquidity constraints back home. Tax planning might be taking a back seat for once. This might explain the jump in repatriation/royalties out of Ireland in H2 2008, which were over €2bn greater than H2 2007.
While Ireland may not produce the type of durable products, such as motor vehicles, the demand for which has aggressively contracted throughout the world, it is important to reflect on some of the particular factors impacting our export trends.
Our exports as a % of GDP have hovered in the 33-34%for the past four years between 2003 and 2007. This was a period when GDP at current prices expanded by 27% and exports expanded by over 23%. However, GDP contracted by 3.6% in 2008 and the contraction in exports mirrored this by declining 3.4%.
The pharmaceutical and information technology sectors combined account for 31% of our total exports. Exports of pharmaceuticals increased in 2008 by 13% while exports of information technology products (office machines) dropped by 25%.
The pharmaceutical sector is extremely valuable to the Irish economy, not just in the employment created, but the value added, which is of the order of 80%. But a substantial portion of this relates to branded pharmaceuticals and the patent protection for many pharmaceutical products is at, or near expiration.
The industry has experienced great difficulty inventing what it defines as ‘blockbusters’, that is products with the capacity to generate at least $1million in annual sales despite travelling many avenues for inspiration. There have been several very large mergers and acquisitions, diversification into biotechnology and purchases of boutique biotechnology companies as well as conventional research, but still the output of new synthetic medicines is so low that it threatens the research and development endeavours. Pharmaceutical research is long-term, time consuming and very costly.
It is hard to believe, in the context of a dearth of new medicines, that Belgium’s most distinguished scientist, Dr Paul Janssen, discovered as many as 80 new medicines and created Janssen Pharmaceuticals, a business that employs over 20,000 people, now owned by Johnson & Johnson.
Many aspects of the IT business are very cost sensitive and the added value in Ireland is lower than pharmaceuticals. But the proposed departure of a major company like Dell is an example of a domestics issue that will have a direct bearing on the scale of future export activity.
While I understand that the lack of blockbusters is a problem for existing pharma companies the world ocver, I don’t understand why they should be a problem for a country supplying factors of production? Coming off patent means that artifically low monopoly levels of production are greatly increased, so presumably there is great potential there?
The actual production of generics is still very high end – the FDA does not accept shoddy standards just because you are a generic. Though presumably embedded and worked through production techniquesof generics might be slightly less high end than the initial stages of prducing a new blockbuster.
@Conor: This is untrue. Irish exports have increased from €115.3bn in 2001 to €148.9bn in 2008.
The pharmaceutical industry is typically thought of as being recession-proof and the product prices in the United States are often as much as 50% higher than elsewhere. This, it is argued, is to cover the research costs and higher marketing costs. But there is real pressure on prices there and everywhere and that, I believe, would impact the value of exports from Ireland.
Greater prices competition would also arise from those generics that are considered equivalents. The industry is putting a renewed emphasis on trimming costs. Mergers and acquisitions, as well as the outsourcing of production provide some solutions.
The FDA is also likely to approve procucts in the biopharmaceuticals that offer bioequivalence. These are some of the straws in the wind that would be reflected in Ireland.
The figures in the chart are confirmed by the manufacturing output figures published this week. The untold story of this global recession is how well manufacturing output in Ireland is holding up. It looks as though, in the first two months of 2009, the fall in manufacturing output in Ireland was by far the lowest of any industrialised country, whether EU, OECD or other. Why don’t Cowen and Lenihan use this fact to bolster Ireland’s reputation abroad? Is it because it would make their repeated assertions that Ireland needs massive wage cuts less credible?
CSO figures out today show that, averaged over January and February 2009, manufacturing output in Ireland was down just 0.8% compared with January and February 2008. I checked Eurostat for the corresponding figures for other countries. In western Europe, averaged over January and February 2009, manufacturing output in France, Germany, Italy, Spain, Finland, Sweden and Portugal was down by approximately 20% year-on-year, in some of these by just under 20% and in others by just over 20%. In eastern Europe, its even worse. Estonia, Hungary, Latvia and Slovakia were all down close to 30% year-on-year in those two months. Even Poland, to which it is claimed Irish manufacturing is fleeing, was down almost 15%. In the U. Kingdom, despite devaluing sterling to parity with the Bongoland Gum Bead, manufacturing output was down 13% year-on-year in those two months. In Asian countries like Japan, Taiwan and Singapore, the falls are heading for 40%. It looks as though, in the first two months of 2009, the tiny 0.8% fall in manufacturing output in Ireland was the lowest of any industrialised country, whether EU, OECD or other.
Talking of the sterling devaluation, it looks as though a wide differential has now opened up in goods inflation in Ireland and the U. Kingdom. Obviously, goods are more responsive to currency changes than services.
In March, goods inflation in Ireland was -3.7%. In February, goods inflation in the U. Kingdom was over 2%. So a gap of nearly 6%, despite the VAT reduction over there. I reckon the gap could easily reach 10% to 15% by early 2010. Despite what Gordon Brown thinks, there is no such thing as a free devaluation.
Ronnie, where did you get your figures from? Irish exports, as covered by the CSO, have nothing like the figures you are mentioning.
Ronnie, here’s two sites dealing with Irish external trade.
Without wishing to be presumptious, I’d guess that Ronnie will reply that the figures Conor is referencing are for goods only, while the figures he (Ronnie) is quoting are for goods PLUS services. These can be found here:
Cheers John for the figures.
Taking that the cso figures I used were for goods only, and that the figures on table five of the link John provided are for good and services, we can get this kind of view of Ireland’s exports, from 2002 to 2007.
Year goods services % of goods % of services
€ bn € bn of total of total
2002 93.673 28.806 76% 24%
2003 82.076 34.930 70% 30%
2004 84.409 40.564 68% 32%
2005 86.732 45.636 66% 34%
2006 86.772 54.891 61% 39%
2007 89.226 62.164 59% 41%
2008 86.218 n/g
There’s no figures for 2008 in the link John provided, but the Central Bank in its April 2009 forecast summary on the domestic economy says that “While the slowdown affected both goods and services exports, a more pronounced fall-off occurred on the goods side.” Goods exports in 2008 experienced a drop of around 3.37% on 2007 figures, while overall, according to the Central Bank, exports of goods and services fell by 0.4% in 2008 on 2007 figures (total in 2007: €151.390bn) This would give a figure of around €150.784bn, and a service export figure of around €64.566bn.
Thing is, for the Central Bank’s figures to work (the -0.4% drop in exports of goods and services), services would have to increase in 2008 in order to absorb the €3bn drop in goods – yet the Central Bank states that “In contrast to the buoyancy of recent years, services exports also fell in 2008, with previously dynamic sectors such as financial and business services being particularly badly hit.”
How can goods and services exports fall in 2008 (goods by €3bn) and still record only a -0.4% overall drop in goods and services?
That graph didn’t work too well. oops.
The CSO don’t give separate figures for services exports in their quarterly national accounts reports (the one I gave a link to), but they do give them in their quarterly balance-of-payments reports, which are always published at exactly the same time as their quarterly national accounts reports. Here is the link to the most recent one for 2008 Q4 (see Table 2a for services exports figures):
So, the CSO say that services exports increased from 65.6 bill in 07 to 67.6 bill in 08. For reasons to do with how the CSO reports figures, there is a difference between the services exports figures in the b-o-p report and those in the table you created above (it doesn’t mean your’s are wrong). The ones in the b-o-p report are consistently higher. But, the increase of 2 bill in 08 that the CSO reports – it might be approximately correct, if you add it to the 07 services figure in your table.
Just to make life even more complicated, all the links I gave are for CSO quarterly reports. When they publish the annual reports for the previous year (usually around mid-summer), there are often massive revisions to the services exports figures they gave only a few months previously in the quarterly reports. In past years, these have always been large upward revisions, sometimes by as much as 10pc to 15pc. Whether that will be the case for 2008, given the global downturn in trade, is doubtful. However, the point remains that, until they publish their annual report for 2008 in mid-summer, the CSO figures for services exports given in their quarterly reports should be taken with a pinch of salt.
As for why the Central Bank said ‘services exports fell’ in 2008, while the CSO reported that they rose from 65.6 bill to 67.6 bill, I would guess (and its only a guess) that the Central Bank was referring to the volume of services exports, while the CSO figures are for the value of services exports. So, the Central Bank is probably assuming there was some increase in their unit sale price (which, I must say, I’m dubious about myself, given the strength of the Euro). All should become clear in mid-summer, when the annual CSO national accounts report is published.
That’s extremely helpful John. Thanks for taking the time to explain that to me. I’ll find it very useful when I go through those figures in the future.
The general trend stands, though, no? That goods exports have yet to peak 2002 figures, while the percentage of service exports has gone from around 24% to around 40% of total exports. I know these are all ball-park figures given the way the information is collated, but still, it reveals at least a general trend. Given the hammering that financial services has taken over the last eighteen months, it seems surprising that Irish services exports appears to have gotten off relatively lightly.
and thanks again for the info.
I think your’re substantially correct, Conor, especially about services exports. However, I’d add a caveat about goods exports. You need to look at the figures for the volume of goods exports, as well as the value. They’re in the same CSO Release (external trade) that you gave a link to above (repeated below). They’re in the same Tables 1 and 2, different columns. According to this, although the value of goods exports peaked in 2002 or so, the volume of goods exports continued to rise, albeit at a much slower rate than pre-2002, right up until 2007/mid 2008, when the global recession hit.
My guess (and its only a guess) is that the explanation is the rise in the Euro v the Dollar between the early 2000s and the 2007/2008 period. A disproportion percentage of Irish goods exports are priced in Dollars (for obvious reasons). So, when the Dollar falls in value v the Euro, then the value of Irish goods exports falls in Euro terms, even though the volume continues to rise.
If this theory is correct, then, as the Euro has fallen 20 per cent v the Euro since last summer, we might see the trend reversed in 2009, i.e. Irish goods exports holding up well in value even if the global recession hits volume. So, far in 2009, we only have goods exports for a single month, January, which is not enough to make a firm conclusion on. But, for what it is worth (and it might not be much), the value of Irish goods exports held up remarkably well in January 2009. They were down in value (measured in Euros) compared with January 2008, but only by about 1 per cent. I looked up Eurostat to see how other countries were doing and, in January 2009, most EU countries recorded year-on-year falls in the value of their exports (again measured in Euros) of about 20 per cent. For countries like the UK, which have seen their currency fall in that time, the comparison might not be meaningful, but even the Eurozone countries all recorded year-on-year falls in the value of their exports (again measured in Euros) of about 20 per cent, apart from Ireland (1pc fall). But, as I say, one month’s figures is not enough to make firm conclusions on. It will be interesting to see if the trend continues for a few months.
Hope this helps, Conor. Unfortunately, I won’t be able to help further for the next week, as I’m about to add to Ireland’s services imports by flying off to Cornwall for a week.
A stupid sentence in my last post. It should have read “as the Euro has fallen 20 per cent v the Dollar since last summer”.
That’s a great help. John. Thanks again.