Business Irish

Sunday 26 February 2017

Ireland may just about avoid a 'double dip' recession next year

If the UK and eurozone economies continue to falter Irish exporters will face a huge challenge to gain entry to new markets, writes John Reynolds

Despite the worsening picture painted by the latest economic figures last week, exports, food and farming continue to be the only beacons of light -- but the deepening euro crisis and rapidly weakening global economy leave a big question mark over whether we can avoid a dreaded double-dip recession.

"The likelihood that we'll have a double-dip recession is increasing every week. Our two big export markets, the US and UK are struggling and there's no solution in sight to the euro crisis. We're on the verge of a depression that could last over five years," says Robert Brennan, managing partner of investment firm Cedar Capital.

"The brakes are firmly on the economy. China's already in recession, and our exports are concentrated in just two sectors -- 33 per cent in pharmaceuticals and 25 per cent in chemicals," he adds.

Technically a recession is when there's two consecutive quarters of negative GDP growth, but our exports would have to take a significant hit for that to happen and result in a double-dip.

However, if the economies of the eurozone and the UK continue to falter, our exporters will face a huge challenge to replace falling sales in those markets with sales in emerging ones such as Russia, Africa, Asia or South America, says John Whelan, chief executive of the Irish Exporters' Association, whose forecast of 7 per cent growth in exports looks as if it will fall short by the end of this year.

"The continuing failure to resolve the euro crisis is hitting exports, bearing in mind that the eurozone accounts for 40 per cent of them. In recent days the only positive is that the euro has weakened slightly and that's making our exports cheaper.

"The big issue is that to replace lost sales in our core export markets, it will take a massively increased, targeted effort by state agencies and exporters in markets where there is growth, such as Russia, South America, Asia and Africa. We're pushing to get into these countries, but it could take a significant amount of time.

"Our key exporting sectors are well-positioned against a global slowdown. Life sciences products, medical devices and pharmaceuticals are bought primarily by state healthcare sectors that are often the last areas to be hit with spending cuts. We're also seeing that developing countries are seeing growing healthcare budgets and need these products.

"On the agri-food side, the growth in food commodity prices and increasing demand for meat and dairy products in Asia, make us less vulnerable to a global slowdown."

Against this background, while our GDP fell by 1.9 per cent and GNP -- the best indicator of the domestic economy -- fell by 2.2 per cent in the third quarter of this year, farming, forestry and fishing grew by 4.5 per cent to show a 15 per cent increase in output for the nine months to October, according to CSO figures.

"It's certainly conceivable that we might have negative growth in the domestic economy for the last three months of this year, depending on what the last quarter's retail figures show, and bearing in mind that it's been in recession on any real measure for the past three years," says Jim Power, chief economist at Friends First.

"The €3.8bn taken out of the economy by the Budget will depress everything further next year. Our 2012 budgetary targets will be very hard to achieve. Our debt level and what we're being asked to do is unsustainable. We're going to need more help from Europe, not just on the Anglo promissory notes.

"The markets don't believe a solution to the euro crisis will restore growth, so globally 2012 will be a very challenging year for Irish exports. If you look at the pace of expansion in Irish exports, the rate of growth is slowing over the past three months in IT and chemicals. Agri-food is holding up but even pharmaceuticals have softened a fair bit as well."

Brian Devine, chief economist at NCB stockbrokers, is slightly more optimistic, but points to the one big unknown.

"We'd have to lose a lot of market share outside Europe to have negative GDP from a fall-off in exports. Given their high quality and high value-added, there's little to indicate that will happen.

"As long as global trade is positive, we won't technically have a double dip. But if Europe somehow blows itself up economically, global trade could plummet, and that could also put our exports outside of Europe at risk," he argues.

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