The CSO have released the preliminary 2010 External Trade figures. They show a record trade surplus of €44.7 billion. This is up on the 2009 surplus of €39.2 billion and nearly €20 billion ahead of the pre-crash surplus of €25.7 billion recorded in 2007. If one was to report a positive economic indicator for the Irish economy, our surging trade surplus would be it.
The trade balance is significantly ahead of the levels recorded at the end of the export-led Phase One of the Celtic Tiger in 2002. As the construction- and credit-fuelled Phase Two of the Celtic Tiger took hold from 2003 to 2007 the trade balance fell. However, since the onset of the current recession the trade balance has gone into a steep incline and this has made a substantial positive contribution to our growth figures (though one that has been swamped by the collapse of some sectors of the domestic economy).
So the prospects of the much-claimed “export-led recovery” must be good, right? Not quite, I’m afraid. The trade balance is the difference between exports and imports. If we look at these we see that the current increase in the trade balance is not due to the same factors that drove the increases during the Celtic Tiger Phase One.
The period from 1995 to 2002 was characterised by rising exports and imports, with the faster rate of rising exports increasing the trade balance. Irish export growth stalled in 2002 (and has not recovered) and in the period 2003 to 2007 the trade balance narrowed as imports rose. Finally, it is pretty evident that since 2008 the huge increase in the trade balance has very little to do with a stellar export performance (strong, resilient, and robust are popular descriptors). Instead, the trade balance increased because imports collapsed.
Imports are now back to a level last seen in 1999 and while some might be crowing about our export performance, Irish exports in 2010 were lower than they were in both 2001 and 2002. While a growing trade balance is good for growth arithmetic, it does not have a significant real effect on the economy if it is based on falling imports. For an analysis of this see our post on Ireland’s import performance from back in January. This gives a different insight to the otherwise positive spin that has been put on our trade figures and why this drop in imports is actually bad for the economy.
Here, we will continue with some analysis of the monthly trade figures from the CSO release.
The drop off in imports since 2007 is self-evident. The performance of our exports has been relatively stable for the five years shown, though the slight decline that was seen towards the end of 2009 has been reversed and exports in 2010 (€90.0 billion) were very slightly ahead of the those from 2007 (€89.2 billion). A “export-led recovery” will need a bit more than a 0.9% increase in exports to make any dent on our employment crisis.
Here comes the good news again but this time in monthly figures. Our monthly trade surplus is now up to around €4 billion a month.
As per usual it is important to consider the key sectors in our merchandise exports. Of course, in Ireland’s case it’s actually just one sector. With only preliminary figures available for December, data by category until November 2010 has been published and this is shown in the following graph.
Nearly 60% of Irish merchandise exports are accounted for by one category – Chemicals and Related Products – and this category itself is dominated by one sub-category – Medical and Pharmaceutical Products. See a previous post for the the impact of the chemical and pharmaceutical sector on the Irish economy using Forfás data.
Here are our pharmaceutical exports since 2005.
It would be great if employment in this sector was also close to doubling since 2007 but it is unchanged – the same workers are generating nearly twice as many exports. In fact, workers in the chemical sector make up about 1% of the workforce and generate nearly 60% of our trade exports.
If we take out the capital intensive chemicals sector from out export figures and see what has happened across the other sectors we do not see the “strong, resilient and robust” performance that is frequently referred to.
In 2007, exports excluding chemicals were €43.6 billion in the first 11 months of the year. In first 11 months of 2010 the equivalent figure was €33.6 billion – a drop of 21.1%. Not much sign of strength here. The “recovery” in 2010 has seen a rise of 0.6% in these exports on the 2009 figures.
Irish export figures are been masked by the dominating effect of the high value chemical and pharmaceutical sector. If we take this sector our (which is “booming” but has added zero jobs) our export performance is scratchy at best. If we take this one sector out of the trade balance what do we see?
Yikes. For the first 11 months of 2010 Ireland had a total trade surplus of €41.2 billion. Take the impact of chemicals out of that and there was a trade surplus of only €268 million. The trade balance in the chemicals sector is equivalent to 99.4% of Ireland’s total trade surplus. Any chance of an extension on those patents??Tweet