Monday, January 10, 2011

Prospects for an “Export-Led Recovery”

Here are the slides I used in a seminar today to the Faculty of Commerce in UCC on the prospects of an export-led recovery in Ireland.

Slideshare seems to have thrown a few of the graphs out of whack and the vertical axis labels are missing on all the graphs.  Bar the area plots most of fine with the line charts largely unaffected.

Anyway the presentation had 30 slides to keep me going for the hour and has some interesting bits and pieces on Irish exports and imports of goods and services, but the crux of the matter can be gleaned from just four.

1. Net exports are surging ahead.

Balance of Trade

2. Our trade surplus is generated by our merchandise exports.

Balance of Goods and Services

3.  Until recently this was because imports were falling rather than exports rising.

Exports and Imports to November 2010

4.  Take away Chemicals and the balance you’re left with is …

Trade Balance excluding Chemicals


  1. What a thoroughly depressing last slide.

    Still, plenty of room for improvement, eh?

    How do we monetise people exports? A one-way departure tax?

  2. I disagree yogan, it shows that the export trends ex-chemicals have been steadily improving over the past 3 years. In the last year of the boom (2007) there was a sizeable deficit in non-chemical exports in Ireland. Roll forward to 2010 and a surplus is now being generated. As our competitiveness and the international trading environment continue to improve this trend can only continue.

    It's also interesting to note that net exports have doubled over the past 5 years. Is that unprecedented? I doubt if even China would have had that out-turn over the same period. Hopefully net exports will top €10 billion this year.

  3. @Cathal
    It would be lovely if it wasn't a net figure. Look at Mr. Coffey's previous slides on declining imports...

  4. @Yoganmahew,

    You're right. I might actually add another graph to the summary showing that it is the drop in imports that has caused the balance of trade in goods to increase.

    The move to surplus has largely been driven by a fall in imports. However, the most recent months show that increasing exports are being to become the main driver. See analysis of the same graph in this post.

    Net exports might have doubled in the past five years but exports in 2010 are 0.5% lower than they were in 2009. It is an falling imports driven trend.

    The arithmetic for growth looks good, but it would be much better if it were based on growing exports rather than falling imports. I hope the trends in the recent External Trade releases continue.

  5. @yoganmahew

    Yes, I have read Dr. Coffey's other posts on declining imports. They did drive the initial fall in the trade deficit ex-chemicals. However the fact remains that we were in a large trade deficit ex-chemicals in 2007 and now we are in surplus. That is a positive development and hopefully the increased exports of the last few months will continue to drive the improvement in our trading position.

    @Seamus Coffey
    Thanks for responding to my comment, I have to say I'm really enjoying your blog here. It gives great analysis on macroeconomics and I look forward to your posts on the Exchequer figures each month.

  6. @Cathal
    "However the fact remains that we were in a large trade deficit ex-chemicals in 2007 and now we are in surplus."
    Well, that's true and I'm not complaining about it. I'd say "a lot done, more to do", but I'd probably have to ban myself if I did.

  7. So the booming export is story is all smoke and mirrors. Take away the chemicals sector and we have just managed to get our heads above water.

    What factors would account for the large deficit in 'balance of trade in services' in Chart 2?

  8. Hi Tumbrel,

    I wouldn't say that the export story is all smoke and mirrors. The numbers are real, it's just our trade exports are biased heavily towards one sector, and a risky one at that. I have some employment numbers I might put together late on. What are we going to when the patents run out?

    If we take the Chemicals sector out, it is true that we are barely running a surplus but there has been a fairly consistent improvement in this statisic for the past few years. It's still small but at least it's going in the right direction.

    While not wanting to go through all the figures in detail I would imagine that our balance of services deficit is being driven by the royalty/license charges we are paying to import R&D from abroad. Up to Q3 here are the 2010 numbers:

    Royalties/License Imports to Q3 2010: €21,119mln
    Royalties/License Exports to Q3 2010: €958mln

    That's a deficit of over €20 billion. Back in 2007 these imports for the first three quarters were €13.2 billion. As the 2010 figure shows this has increased by nearly €8 million. So much for the "Smart Economy"!

  9. The Royalty 'imports' could be a result of US Revenue pressure on companies under what used to be called [sub-part F] of the US revenue code.
    The US used to tax foreign 'generated' profits under this heading. The MNC's generally try to camouflage the extent of the profit exported by charging fees and royalties to reduce the profit exported and to try to keep themselves off the radar.

  10. You may be right. We don't know the breakdown of these royalty payments but I would guess that a huge portion of it is intra-company transfers in the MNC sector. Given the dominance, and continuing increases, of computer services in our service exports and pharmaceuticals in our trade exports it is likely that the US multinationals subsidiaries in Ireland are paying out substantial amounts for copyright licenses for software and patent royalties for patents.

    This could very well be a tax issue. I not well up on tax but I would imagine that these intra-company transfers are not subject to tax and are a very useful way to move money around, particularly if credits and/or subsidies are allowed for R&D work where the money is going.

    €7 billion a quarter in royalties means there is a lot of lolly being washed through Ireland.