Currency war threatens export sector

The booming Irish export sector could become one of the first victims of an international currency war, according to the CEO of the Irish Export Association, John Whelan.

Mr Whelan made his comments after sterling tumbled against the euro following Moody’s Investors Service decision to cut the UK’s AAA credit rating. Sterling extended losses against the euro, falling to a 16-month low as more investors sold the pound after ratings agency Moody’s stripped the UK of its prized triple-A rating.

The euro was up 1.4% at 87.80p, its highest level since late Oct 2011, with traders also citing month-end demand for the single currency as a factor pushing it higher against the pound.

The knock-on effect of this is to eat in to Irish exporters’ margins. “Our export economy could be undone by currency movements internationally,” he said. “It has already taken the shine off the 2013 outlook.”

Irish exports to Britain are worth about €30bn a year with €15.5bn worth of goods and a further €14.5bn in services being traded every year. Mr Whelan warned a 5% devaluation of sterling will wipe €1.5bn off Irish exports to the UK over the full year.

“Britain is our number one trading partner and main export market. An ideal exchange rate is about 70p we are now at 88p so companies’ margins are being taken out,” he said.

Ireland’s exports success is a casualty of a global currency war that is being driven by quantitative easing (QE) measures which devalue currency by increasing the amount of money in circulation.

The Bank of England governor Mark Carney is committed to QE measures, as is the US Treasury who has committed to doing whatever it takes to get the economy growing again.

As a consequence of the US Treasury’s policies, the Chinese currency has been devalued as it is pegged to a dollar value.

Japan has also committed to devaluing in an attempt to stimulate its economy after 20 years of stagnant growth. Analysts say we are looking at a currency war.

The IEA has urged the Government to make the necessary calls to the ECB for a reduction of 0.125% in the interest rate, as an immediate move to reduce the strength of the euro and boost export competitiveness from eurozone exporters.

The Government will need to do everything it can to keep business costs under control said Mr Whelan.

“There are not many options open to the Irish Government except to keep a tight control of wage and overhead costs, so that exporters can continue their drive to improve productivity and remain as competitive as possible on export markets,”

Mike Glennon, of Glennon Brothers, said that unless something is done they will have to consider whether it is worthwhile exporting to the UK.

“The UK is the largest importer of timber in Europe and also the largest export market for Glennon Brothers products. In 2012, over 80% of Glennon Brothers total exports were sold to the UK market.

“Since the beginning of 2013, the value of sterling has fallen by 8% relative to the euro. A further decrease in the strength of sterling will seriously threaten our ability to export to this market,” said Mr Glennon.