Trade is keeping our economy afloat

THE Irish economy has performed disastrously over the past three years but it appears that the domestic and trading economies are moving in opposite directions.

The domestic economy is now showing levels of economic activity comparable to those seen in 2003.

On the other hand, the contribution of trade to GDP has increased by 70% since 2007 and is at record levels. This increase in the trade balance has offset some of the drop in the domestic economy, and without this, Irish GDP figures would be even more horrific.

Ireland ran a trade surplus of more than €29 billion in 2010. This is a 70% increase on the €17bn trade surplus recorded in 2007. On the merchandise side, there was a trade surplus of €37bn, while for services there was a trade deficit of €8bn. The services deficit has increased from €3bn in 2007 to €8bn in 2010. The positive contribution of trade to our overall GDP is dependent on the activity on the goods side.

In 2007, the merchandise balance was €24bn. By 2010, it rose to €37bn. Our trade balance is now the second highest in the EU, lower only than Germany.

To understand the causes of this we must look at the flow of exports and imports. In 2010, goods exports were €84bn and goods imports were €47bn. Subtracting one from the other shows that there were €37bn more in goods sold to the rest of the world than goods bought from the rest of the world.

The €24bn merchandise balance in 2007 was the difference between the €84bn of exports and €64bn of imports. Although our trade balance has increased since 2007, the level of exports is almost identical. Goods exports were €84.1bn in 2007 and were slightly lower at €83.9bn in 2010.

Trade might be making record contributions to Irish GDP but, up to now, it has not been export-led. It is changes in imports that have caused the trade balance to rise to record levels.

In 2007, Irish imports were €64bn. For 2010, imports were €47bn. This drop accounts for the entire €17bn increase in the trade balance. The country is buying fewer goods from abroad.

More than two thirds of the €17bn drop in imports since 2007 is accounted for by one category — machinery and transport equipment. Imports in this category were €25bn in 2007, but fell to €12 billion in 2010.

It is evident that some of this fall is due to the slowdown in domestic consumption, but the picture becomes clearer if we look at what happened to our exports of computers which have fallen from €12.6bn in 2007 to only €4.5bn in 2010. At the same time as imports of computers fell by €7bn, exports of computers fell by €8bn.

These computers weren’t being imported for domestic use, they were imported for re-export. With the loss of Dell’s former manufacturing facility in Limerick, imports are gone, the exports are gone and the 2,000 jobs in Dell are gone.

Exports of chemicals were €43bn in 2007 and rose to €52bn in 2010. This sector now accounts nearly 60% of total goods exports from Ireland, even though it makes up about 1% of the labour force.

Excluding chemicals, there was a trade surplus of only €185m across all other export categories. The equivalent of 99.5% of the merchandise surplus is generated by the pharmachemical sector alone.

Exports in nine of the 10 categories reported by the CSO’s External Trade Statistics were higher in 2010 than they were in 2009, though six of these are still below the 2007 levels. For the last six months of 2010, exports were 15% higher than in the same period of 2009.

There is little doubt that Irish exports are recovering. There remains doubt about the potential of converting this into jobs growth.

In 2001, employment in the chemicals sector was 26,060. Eight years later, and after a 50% rise in exports, employment was 25,352. In the face of an unemployment crisis with up to 450,000 people out of work, this is not the type of export-led recovery we need.

Seamus Coffey is lecturer in economics, UCC

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