Wednesday 22 November 2017

Relief for exporters as economists forecast sterling gains on euro

Brendan Keenan and Aideen Sheehan

THERE will be some relief for Irish exporters to the UK this year, with gains in sterling against the euro, Ulster Bank economists say.

Senior economist Simon Barry predicts that sterling will recover to 80p to the euro by the end of the year.

"Greater focus on the euro area, rather than UK economic weakness, provides scope for the sterling rate to continue to move lower," he says in the bank's 'Market Focus'.

He also expects further falls in the euro against the dollar, partly driven by cuts in euro interest rates to 1.5pc or less, although the dollar may weaken again later in the year.

"The ECB is lagging behind the other main central banks in terms of its policy response. Its 2.25p cumulative reduction in rates so far this cycle is less than half that introduced by both the Fed and the Bank of England.

"Nonetheless, it is cutting rates faster than it ever has before. Its cut last week to 2pc has taken rates to as low as they have ever been in the institution's 10-year history," Mr Barry says.

The report says the global economy is experiencing "a severe and synchronised downturn" led by pronounced weakness in the world's major economies.

The US is facing its longest, though not its deepest, recession since the Great Depression of the 1930s, the report says. The euro area economy is set to contract by as much as 2pc in 2009 and a 2pc fall in the British economy would be the worst for the UK since 1980.

"The Obama fiscal plan, the 'do-whatever-it-takes' mentality at the Bernanke Fed, lower oil prices and a housing correction that can't and won't last forever, lead us to believe that the US economy will show signs of stabilising later in the year, and a return to positive, if still below par, growth rates by the end of the year," the reports says.

Meanwhile, Tanaiste Mary Coughlan said she would consider a proposal put to her yesterday to reduce financial losses and protect against job losses due to the weakness of sterling.

The Irish Exporters' Association and the Irish Farmers Association say that up to 23,500 jobs are under threat in the export sector as a result of the 20pc depreciation in sterling.

They want a sterling-equalisation support scheme to allow exporters to sell the sterling payments they receive to the National Treasury Management Agency (NTMA) at a more favourable exchange rate.

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