Could this be as good as it gets for Irish exporters?
Ireland's trade surplus jumped by almost a quarter to €4.5bn in June. But with sterling in freefall, is this as good as it gets for Irish exporters? Dan White does some calculations
Irish merchandise exports were worth €9.55bn on a seasonally adjusted basis in June, with the surplus over imports jumping by 24pc to €4.55bn. While on the face of it these look like good numbers, they appear far less impressive when subjected to closer scrutiny.
Firstly, Irish merchandise exports grew by a mere 2pc in June 2016 compared to the same month last year. Secondly, these export totals appear to have been distorted by a 12pc jump in pharmaceutical exports to €2.83bn and a 109pc increase in electrical machinery exports to €509m.
Strip these out and the underlying export performance was far more pedestrian. Food and drink exports were up by less than 1pc to €965m - while other export categories actually fell, with the value of machinery and transport equipment exports down by 14pc to €1.36bn in June.
Further flattering the picture was a sharp fall in imports, down by over 12pc to €5.1bn. What emerges when all of these distortions are filtered out is a very pedestrian performance from most categories of Irish exporters in June.
Of course one shouldn't read too much into just one month's statistics. A single shipment leaving the country on June 30 rather than July 1 can have a significant impact on the overall national figures. However, even if one takes the figures for the first six months of 2016, when the value of goods exports increased by 1.2pc to €55.4m, a very similar picture emerges.
And that was before the UK vote for Brexit on June 23. The value of sterling, which was trading at over €1.30 on the day of the poll, was down to less than €1.15 at one stage last week. While most Irish exporters will be able to adjust to the existing exchange rate it could be a very different story if sterling were to fall even further.
Which could be just what is about to happen. In March employers' body Ibec warned that a UK vote for Brexit could see sterling fall to parity against the euro. Now HSBC, Europe's most valuable bank, is predicting that the euro will reach parity against sterling within 18 months.
Unfortunately, the monthly trade statistics give us only a partial view of our foreign trade. As it says on the tin, the CSO figures relate to "goods exports and imports" only. However, in any modern economy services are increasingly important. And Ireland is no exception.
Unfortunately, there are far fewer up-to-date figures available on Ireland's trade in services. The last set of comprehensive figures, the CSO's international trade in services statistics, are for the 12 months to the end of December 2014, almost 20 months ago. These show that Ireland exported almost €102bn worth of services in that year.
Ireland's exports of goods in 2014 were worth €92bn. In other words, services accounted for over 52pc of our exports in that year.
For the period since the end of 2014 we have to rely on the CSO's quarterly balance of payments figures to get a handle on services exports. By comparison with the detailed information contained in its goods exports and imports statistics, the quarterly balance of payments figures are very much of the broad-brush variety.
In addition, the quarterly balance of payments figures have been seriously distorted by the 'Leprechaun economics' phenomenon. Included in its 'exports' figures are goods and services sold by Irish-owned companies on which royalties or licence fees have been paid - even if the goods or services concerned never saw these shores.
This boosted our merchandise exports over the figures contained in the exports and imports of goods statistics by 23pc in 2014, 74pc in 2015 and by 70pc in the first quarter of this year.
Services exports seem to have been less affected with the balance of payments data boosting the 2014 figures by just 3.5pc over the international trade in services figures. With the balance of payments data pointing to a 15pc increase in 2015 services exports as against a 70pc increase in goods exports, it seems reasonable to assume that the figures for services exports have not been as badly distorted.
Between the jigs and the reels, it would seem that services now account for well over half of the value of our exports - and that services will account for an ever-growing proportion of our total exports.
Confused? You probably should be. As the CSO statistician who attempted to guide us through this maze observed with more than a hint of understatement: "Ireland has a really complicated set of macroeconomic accounts."
Regardless of how one attempts to measure Ireland's exports, what is clear is that many exporters - particularly those in indigenous sectors - were already feeling the pinch even before June 23.
"Exports to the UK were down by 11pc in June and by 5pc so far this year. We are starting to feel the effect of the fall in sterling," says Paul Kelly, director of Ibec's Food and Drink Industry Ireland.
While food companies are generally better than other Irish companies at hedging their foreign currency receipts - over half of food companies are hedged as against less than a quarter of all indigenous companies - that only buys time.
Kelly's worry is that unlike previous fluctuations in the euro/sterling exchange rate (such as in 2008 when the euro briefly came within touching distance of parity), the most recent movement in the exchange rate will prove to be a permanent structural change, rather than a temporary cyclical one.
"UK food inflation is negative. This means that there will be a lot of resistance to passing on higher currency costs. Real wages in the UK are lagging the fall in the exchange rate. Already some retailers such as Morrisons have said that there will be no post-Brexit price increases. All of the indications are that things will get worse - and not better."
This is not good news for Irish exporters. Kelly points out that, even before the Brexit vote, many exporters to the UK had already been cutting their prices to stay competitive, something that will now be much harder following the collapse in the value of sterling.
Irish exporters can only hope that, as in the past, sterling recovers against the euro before too much damage is inflicted on the economy.
Sunday Indo Business