A “vintage era” for Irish small business exporters will likely extend through next year, as the euro remains lower for longer against sterling than once thought, leading economists have predicted.
The rise of sterling and the dollar against the single currency has provided Irish exporters with an exceptional advantage in exporting goods and services.
The drop in the value of the euro against sterling has benefited small and medium sized businesses in the Republic in exporting to Britain because exporters are able to price goods and services competitively, due to the gains of the currency.
The euro has slid from 80 pence in late 2014 to 72 pence, mainly because the US and the UK are on the verge of raising interest rates, while the ECB has been desperately struggling to ignite growth across the eurozone by pumping money into financial markets through its quantitative easing (QE) programme.
Analysts say despite all “the noise” last week when the Fed decided not to raise rates, and speculation about the timing of the UK rate rise, that any rise by the ECB would likely be two years behind the US central bank and the Bank of England.
“We think that the euro has further to fall against sterling, it will go as low as 67 pence in the first quarter” next year, said Philip O’Sullivan chief economist at Investec Ireland.
Mr O’Sullivan said that the UK economy, driven by the strength of domestic demand, is growing strongly despite the constraints of the strong pound that is harming the country’s exports.
Investec says that a Bank of England rate rise has been delayed but only by a few months and that UK rates will rise during the first three months of next year.
Meanwhile, the euro should remain comparatively weak despite ECB president Mario Draghi raising doubts about further boosting QE.
Yesteday, the euro climbed against most of its major counterparts as Mr Draghi said more time is needed to judge whether further stimulus is required.
“It doesn’t sound as though he’s rushing to extend or pursue even more aggressive language and rhetoric,” Jeremy Stretch, head of foreign exchange strategy at Canadian Imperial Bank of Commerce, said of Mr Draghi.
“A lot of this is priced in but we do expect that the event of the [US and UK] rate increases means that there will be a bit more of euro weakness to come,” said Mr O’Sullivan.
Conall Mac Coille, chief economist at Davy Stockbrokers, said that many analysts believe that sterling will rise further against the euro.
Once the Fed raises rates the Bank of England won’t be far behind. The ECB’s QE programme will maintain the pressure on the euro.
“It has been below 70 pence at one stage. You would think that it could happen again, especially with the ECB doing so much easing, it could happen again,” said Mr Mac Coille.
“Irish exporters have enjoyed a considerable benefit in competitiveness and that is not going to go away,” he said.
Mr O’Sullivan at Investec said that the slowdown in China may be “good news” for Irish exporters, as long as the rout of emerging markets doesn’t spread: “It is a vintage year. It will go down as a vintage year,” he said.
“We are seeing the best year for exporters for the best part of a decade.”
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