2009
Exports Down in First Quarter �
Regaining Competitiveness Is Key to Preventing Further Falls
Irish exporters felt the full impact of the economic downturn in global markets losing 9.6% of export value in the first quarter according to the latest depressing statistics revealed in the Irish Exporters Association�s first quarter report for 2009.
Total exports for the first quarter of 2009 stood at �33.78 billion down from �37.38 billion in the same period last year. The Irish Exporters Association (IEA) says that unless the Government provides some additional stimulus for the sector that the prognosis for the full year is that exports will continue to decline at an accelerated rate leading to substantially increased unemployment in the sector.
According to John Whelan, Chief Executive of the IEA, the Association�s forecast for the full year is for exports to fall by 13%, with a loss of export revenue of �20.2 billion and direct job losses of some 91,000. �The knock-on effect of job losses on this scale on the economy, however, is much greater as each export job supports two other jobs in the community,� he added. The table below shows the IEA�s forecast for the full year.
| � million | 2008 Jan- Dec � | 2009 Forecast Jan -Dec | Diff � | % Change |
| Merchandise | 86, 252 | 79,500 | -6,752 | - 7.8 % |
| Services | 67,590 | 54,100 | -13,490 | - 20.0 % |
| TOTAL | 153,842 | 133,600 | -20,242 | - 13.2 % |
Complicating this situation is the fact that indigenous exporters have been particularly badly affected by the effective 21% depreciation in the value of Sterling against the Euro over the past 12 months. �Indigenous exporting companies, which traditionally have a high labour content, depend on the UK market for 53% of their sales. We believe that the worse is yet to come because many companies have not yet fully factored the Sterling fall into their sales pricing,� said Mr Whelan. He added that when this occurs indigenous exporters can expect a further loss of competitiveness in the UK, a fall in sales and a further decline in employment.
Merchandise exports showed a decline of 3.4% in the first quarter, which could probably be rated as �not too bad� by international standards. However, what seems as a modest decline is being camouflaged by the growth, mainly from multinational companies in the pharmachem and medical devices sectors which are virtually recession proof. The Table below shows the performance of Ireland�s main merchandise exports, with continued growth of the Pharmaceutical, chemicals and Medical devices sector , which now account for 60% of total merchandise exports. But the Agri / food sector exports fell by 15% and Beverages by 9%, both are labour intensive and heavily exposed to the UK market and the sterling depreciation.
| Table . Merchandise by Product Type > Exports (�m): | |||
| 2008 Jan/Mar | 2009 Jan/Mar | % Change | |
| Agri/food | �1,624 | �1,377 | -15.2% |
| Beverages | �257 | �234 | -8.9% |
| Pharma/ Chemicals | �11,023 | �11,604 | + 5.2% |
| Computer Hardware | �3,778 | �2,757 | -27.0% |
| Medical Devices | �779 | �837 | + 7.4% |
| Misc. manufactured | �429 | �297 | -30.7% |
The Review shows just how much export business has been lost in the UK with falls of 11.7%, much of which can be accounted for by the depreciation of sterling. Exports to Northern Ireland fell by almost 25%. However, even in euro-zone markets where exchange rates are not an issue the demand for Irish products fell by 9.7%, reflecting the general impact of the recession internationally. Our rapid rise of sales to China over the past decade came to a sudden and sobering end in the first quarter with exports falling by 21.3% .This fall reflects, to a great degree, the restructuring of global supply chains already being implemented by the multinationals in response to the global recession.
Services Exports
The outlook for services deteriorated sharply in the last quarter of 2008 and continued into 2009. Services exports which since the turn of the decade have been the primary driver of export growth in Ireland were heavily affected by the rapid deteriorating in global economic conditions and the collapse of Leyman Brothers in the US last September, which triggered a free fall in many of the financial products, traded internationally where Irish operators were major players.
The quarter on quarter export loss was 18% ,with services exports falling to �13.0 billion, which is down by �2.9billion for the quarter compared to the same period in the prior year.(Ref Table below) .The fall in the value of Sterling also had it�s affect on our services exports ,as the UK is by and away the largest of our services markets taking 20% of output from the sector.
However, the largest services exports sector is in Computer Services which fell by only 9% to �5.2 billion. This sector continues to attract major international corporations, with Face Book, Paypal, e-Bay, Google continuing to expand here, adding to the longer term major players such as Microsoft, HP Services centre, and Intel R& D centre of excellence facilities. The sector now accounts for 40% of total Services exports.
Business services, the second largest sector of the Services exports, fell by 38% as markets in aircraft leasing, ship leasing where we are in the top 5 internationally, and general consultancy collapsed.
Turnover in the Transport sector fell sharply by 30% in the first quarter, as many in the sector providing import services for the construction sector saw their markets vanish.
The biggest loose in the first quarter was in the Financial Services sector , which fell by 50% as turmoil in the UK and US markets led to global failure and the elimination of many hedge fund and derivative products that the sector traded in.
| Table . Services Exports by Type (�m): | |||
| Type | 2008 Jan -Mar | 2009 Jan-Mar | %Change |
| Transport | 497 | 348 | -30% |
| Tourism | 1,891 | 1,607 | -15% |
| Communications | 110 | 100 | -9% |
| Insurance | 1,972 | 1,617 | -18% |
| Financial Services | 1,801 | 900 | -50% |
| Computer Services | 5,739 | 5,247 | -9% |
| Royalties | 213 | 220 | +3% |
| Business Services | 4,639 | 2850 | -38% |
| Others | 178 | 150 | -16% |
Regaining Competitiveness
There can be no doubt that the global recession is taking its toll in most markets and that the Irish economy is one of the hardest hit resulting in exporters feeling the strain. The IEA believes that there are things that can be done to lessen the problems of exporters. �For a start, there must be an immediate return to competitiveness in all sectors of the economy to prevent further job losses and support a return to export growth in 2010 when global markets are expected to grow again,� said Mr Whelan. He added that it may seem simplistic, but the unit wage costs and output per employee that enabled Irish industry to export competitively in the 1990s must be addressed now by taking tough decisions on wage rates. �With inflation expected to fall 4.5% in 2009, an event not seen for decades, there is unlikely to be a better opportunity or stronger case for wage reductions of the same magnitude,� said Mr Whelan.
Mr Whelan, however, stressed that non-wage costs are also an important ingredient of competitiveness. He said that Government policy has a key role to play here and noted that many costs in Ireland are now well above the EU average and must, as a matter of urgency, be reduced to, at least, the EU average. He instanced:
Industrial electricity prices � 45% above the EU average last year.
Industrial gas prices � 25% above the EU average.
Utility and property prices well above the EU average.
Legal, accountancy and consultancy costs all considerably higher than the EU norm.
Mr Whelan said that many Irish exporters are finding they can not obtain credit insurance. This is affecting their working capital resulting in difficulties raising longer-term debt. This places Irish exporters at a competitive disadvantage since other governments have moved rapidly to support their exporters faced with this market failure. �Here in Ireland, because of Government inaction, we are finding many companies unable to meet their debts as they fall due leading to what the IEA believes are avoidable insolvencies,� said Mr Whelan. He also stressed that the State has a role to play in encouraging wide-spread investment in automating industry and suggested a drive utilising BES-style tax incentive policies to aid such an initiative. The IEA also urges that the Foreign Direct Investment (FDI) policies that the IDA has pursued so successfully in the past, must now be renewed and invigorated to ensure Ireland remains an attractive location for FDI, despite lower cost labour and matching corporation tax regimes in newer EU member states.
The final message from the IEA is � �yes we can� return to sustainable economic growth based on an export led vision, but it will require decisive actions to support the re-invention of our innovative competitive business structure. Mr Whelan concluded: �Any return to high taxation structures to support an over large public sector will undoubtedly cripple the execution of this vision.�
ENDS
For further information contact:
Mr John Whelan
Telephone: 087 9271243
Email: jfwhelan@irishexporters.ie
To view the First Quarter Review in full, please click here.
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