The smashing of the trade compass in 2016
We lost David Bowie and Leonard Cohen, we gained Brexit and Donald Trump.
Last January I commented that 2015 was the best year ever for Ireland’s exporters, growing five times faster than the European average and knocking at the quarter of a trillion euro mark in export value.
Ireland was the fastest growing economy within the EU and looking very much like it was heading into Celtic Tiger Two, but this time driven by sustainable export growth.
David Cameron and his Conservative Party had won an outright victory in 2015.
As we moved into 2016 there were no alarm bells ringing in Merrion Street or Downing Street when he decided he could fulfil a manifesto commitment to undertake a renegotiation of Britain’s membership of the EU and follow up with an in-out referendum later in June 2016.
Hence, most commentators, me included, did not anticipate a negative outcome of the UK referendum on EU membership.
Equally, at the beginning of 2016, few — if any — gave credibility to the challenge by Donal Trump for the Republican Presidential nomination.
Fewer, still, anticipated that he would make it all the way to the White House.
The rapid process of electing Theresa May as the new UK prime minister gave no one time, least of all David Cameron, to assess what the Brexit vote would mean and if there was a real political appetite to go all the way, or whether a compromise could be reached with those who gave a knee-jerk vote to leave the EU.
From the get-go it was rapid forward as the new UK premier made it clear ‘Brexit means Brexit’ and what was more she was of a mind to make it a hard Brexit at that.
Across the Atlantic, the extraordinary statements from Donald Trump on the campaign trail gave cause for real concern amongst those reliant on international trade for a living.
Stock and currency markets gyrated to each outlandish utterance from the reality TV host and property tycoon.
Free trade was eschewed as the enemy of the working man.
Mr. Trump denounced the Trans-Pacific Partnership pack between the US and 11 Pacific Rim countries, the North American Free Trade Partnership with Canada and Mexico and threatened a 45% import tariff on all goods from China.
As the year moved towards a close and Mr. Trump won the presidential race, a further and perhaps more alarming surprise was the speed with which he was re-assessed as a catalyst for growth.
His tax cuts and infrastructure spend plans were seized upon by the stock markets which ripped to an all-time high as investors embraced his election win.
The currency markets decided he was good for the dollar, turbo charging it to new heights.
However, 12 months ago none of these issues were envisaged.
The main risk to the continued recovery of the Irish economy and sustainable growth in our international trade was the painfully slow recovery across the EU.
There is no doubt that 2016 will be remembered as a year of political surprises, at home as well as abroad.
The Fine Gael /Labour coalition took a hammering, as the man in the street was still hurting from the effects of the recession and wanted more in his pocket for a quicker return to good living standards.
Belatedly, there was a realisation by established parties that labour would have to get a bigger slice of the pie.
The anti-austerity mantra was now the calling card for populist politicians across the international spectrum.
Delivering for these policies means sizeable wage inflation will need to be factored into the coming year.
Additionally, 2016 will also be remembered as the year that negative interest rates were seen as a mistake, with the US leading what will, undoubtedly, be the trend for the next few years of rising interest rates.
The long-established link between sterling and the dollar, traditionally moving in tandem with each other, was broken in the year.
Sterling took a nosedive immediately after the Brexit referendum decision was posted, whereas the dollar rose to a 13-year high after Mr Trump’s election was confirmed.
The weak sterling squeezed the profit margin out of Irish trade with the UK. However, there was succour for those exporting to the US as the dollar rose sharply to boost margins.
It was, indeed, panning out to be a tricky year, with a premium on being on the right side of the Atlantic.
It was a good year for strong men, which is usually a bad omen for trade development which seldom flourishes under dictators.
Vladimir Putin, in pursuit of his military games in the Ukraine, has decimated Russia’s international trade - including the lucrative agri-food trade with Ireland.
Recep Erdogan - pursuing a dictatorship agenda in Turkey - has ostracised trading neighbours across Europe.
Xi Jinping the Chinese leader who strengthened his grip by promoting himself to ‘core’ leader in China in December, is perhaps the shrewdest of the bunch.
At home, his big anti-corruption and frugality campaign is a smart move to pre-empt workers dissatisfaction with rising wealth disparity and also strengthen the 87 million- strong Communist Party by bringing the cadres closer to the people.
Abroad, he has forged a foreign policy to dispense hundreds of billions of dollars to countries from Asia to Latin America, while confronting Asian neighbours and seeking geopolitical parity with the US.
Xi has been a good friend to Ireland, supporting our trade development with China, which bought goods worth in excess of €3bn from Ireland in 2016, a new high.
But how will he, Vladimir and Recep manage Donald —the new strong man on the block?
The early signals, as we head into the New Year, are that Donald has signalled out Xi for a major showdown on the trade front and is cosying up to Vladimir.
It’s a scenario that does not bode well for international trade growth.
Despite the roar of distant drums, closer to home the eurozone economy shrugged off any early Brexit contagion in the third quarter of the year, as GDP growth remained steady.
While a breakdown is not yet available, the growth story in Europe — as in Ireland — will likely have remained the same as previously, with GDP growth supported by solid domestic demand in the face of a subdued global demand.
The unemployment rate continued on a downward trend across the year, helped by the European Central Bank’s supportive monetary policy boosting investment and consumption.
Looking at the economies within the EU, divergent growth patterns were seen with Ireland and other periphery economies recording some of the strongest gains.
Despite the political unrest and the terrorist attacks of early in the year France’s economy rebounded.
Italy’s economy was not de- railed by the rejection of Matteo Renzi’s constitutional reforms.
Greece’s growth surged in the second half of the year.
On the other hand, Germany’s growth slumped as its exposure to external trade was hit.
Spain’s GDP expansion also lost pace, although the country remains among the top performers in the eurozone.
At the moment, data is sparse for final year-end figures, but early indicators suggest that the eurozone economy has shown resilience in the face of heightened uncertainty.
As the year closed out, the Irish economy was coming under increasing pressure.
Leading indicators have shown volatility since the Brexit vote in June and the unexpected electoral results in the US have prompted growing apprehension.
Both countries share extensive economic ties and any changes to existing trade deals could hamper Irish economic activity since the US receives over 26% of Irish exports and the UK a further 13%.
The growing uncertainty has already taken it’s toll on exports, with international sales of goods and services reduced to a modest 5% increase in the year, compared to the growth of 13% in 2015 and 14% in 2014.
The Brexit and Donald Trump votes exposed a gap between winners and losers in the aftermath of the financial crises.
But, they have left us with a legacy that may wreak havoc on free movement of goods, services, finance and people to the detriment of all.
