Merchandise trade is accelerating

With a population of just over 4.6 million people and with fewer than two million people in employment, Ireland can only be described as a tiny global economic entity, writes Jim Power.

By any standards, this represents a very limited domestic market. To suggest as some did in the heyday of the construction, banking and consumer boom that Ireland could afford to become more domestically focused due to very favourable demographics, was nonsense then and is nonsense today.

Exports represent the lifeblood of this small open economy and the day we started to believe and act otherwise was a dangerous one.

When that belief crept in, we took our focus away from the importance of competitiveness and we focused way too much attention on activities such as retail, banking and construction, and allowed the export model to become quite shoddy.

This is not to suggest that activities such as retail, banking and construction are not important to the economy, but they should be heavily supported by the export machine, rather than the other way around.

Ireland is a textbook example of a small open economy that is influenced, to an incredible degree, by external trade relations. In 2014, exports of goods and services out of the country totalled over €207bn, which is equivalent to 112% of GDP.

Merchandise exports account for over 51% of the total, with services such as tourism, royalties, transport, financial, insurance and various business services accounting for the remainder.

One of the features of the economic recovery here over the past couple of years has been the renewed contribution of the export sectors of the economy. Last year, exports of goods and services expanded 12.9% in money terms and by 12.6% in volume terms.

This represents a strong growth performance by any standards, and thankfully all of the evidence suggests the momentum is being maintained so far this year.

In April, merchandise exports reached the highest monthly level since the series began. They were 30% higher than April of last year, with the exports of medical and pharmaceutical products 63% up on April 2014. In the first four months of the year, merchandise exports totalled €34bn and were 20.4% higher than the equivalent period last year.

Exports of food and live animals rose 2.6%; chemicals and related products rose 27%, with medical and pharmaceutical products up 44.9%; and machinery and transport equipment expanded by 18.6%.

These are incredibly strong numbers, but the performance of the chemical and pharmaceutical sector is not easy to understand. There is probably an element of rebound from the pharmaceutical /patent cliff which has been very influential over the past couple of years in a negative sense, but we will need to await considerably more data on this sector before we can be definitive.

It is somewhat reassuring that in the first quarter of the year, the Quarterly National Household Survey shows that employment in industry, which is mainly manufacturing, increased by 9,300 compared to a year earlier.

On the service export side we don’t yet have much in the way of data, but the tourism component is doing very well. We know that from February to April, the number of trips to Ireland rose 13.5% compared to the same period a year earlier.

The weakness of the euro against the dollar and sterling is obviously very important and is likely to remain very influential over the remainder of the year.

The outlook for exports looks generally promising and this will increasingly feed into domestic activities such as retail, construction and the hospitality sector. It is vital however, we do not allow the renewed growth in the economy to start pushing up costs and prices again.

External trade, be it tourism, merchandise goods or services, is very sensitive to price and quality. We obviously should strive, on all fronts, to enhance the quality of what we do, particularly on the tourism front, but price is also incredibly important, or more precisely value for money.