18 Feb 2019

Irish Economy: Another record year for exports

Goods Exports and Imports data published by the CSO on Friday show that 2018 was another record year for merchandise exports, with the €140.8bn of goods that left the country last year representing a rise of 14.8% on the 2017 outturn. Imports surged 13.8% to €90.2bn. These produced a €50.7bn trade surplus, +16.6% y/y. Preliminary unadjusted volume data show exports +21.0% y/y and imports +13.0% y/y in 2018.

Staying with the “record” theme, December produced record seasonally adjusted exports (€13.3bn) and imports (€8.7bn). Of course, these headline data can be skewed by the multinational sectors (Chemicals and Related Products account for more than half of nominal goods exports, for example), but the data show broad progress, with six of the nine main commodity groups showing annual growth in exports, with seven of the nine posting an annual increase in imports.


The data also show that exports to Great Britain fell 3.0% last year, although this fall was principally driven by exports of Chemicals and Related Products. The UK was the destination for 11.4% of nominal exports last year, 200bps below its share in 2017 and continuing the long-term decline in Ireland’s closest neighbour’s share of its total exports (in 1926 a remarkable 97% of the then fledgling State’s goods exports went to the UK).


These are clearly blockbuster numbers, not least given the more uncertain external environment. Notwithstanding the UK’s relatively modest share of total exports, we see it contributing in a meaningful way to a good Q1 outturn for Irish exports, specifically on the assumption that Brexit-related stockpiling of food and pharma related items (sectors which account for 69% of nominal exports) will cause a short-term spike in Irish sales into that market.


US this week


Following high level meetings last week between US Treasury Secretary Mnuchin and US Trade Representative Lighthizer with their Chinese counterparts, a delegation from Beijing will this week journey to Washington for further talks. Clearly there is still work to do, with a final deal unlikely to be reached until Presidents Trump and Xi meet face to face (possibly later in March), but Trump himself was remarking that the US and China are closer than ever to an agreement. Note there is also continued talk about an extension to the self-imposed 1 March deadline, with the US reportedly considering an extra 60 days. We will also receive the minutes to the Federal Open Market Committee’s (FOMC’s) 30-31 January meeting. These will be scrutinised for information on what drove the big shift in Fed communications between the December and January meetings. Clearly the sell-off in global equity indices and signs of a weaker global economic backdrop would have been important. But looking to assess the Fed’s reaction function going forward, investors will be keen to understand the extent to which each of these and other factors drove the FOMC to be more “patient”.


UK this week


Brexit obviously remains front and centre of the news and after last Thursday’s rejection of Mrs. May’s motion, she is likely to face an even greater uphill struggle in seeking to secure concessions on the Irish backstop from Brussels. It seems likely that this week in Westminster will be more subdued. It would have been recess week and whilst this has been cancelled, many MPs are still likely to be away and parliamentary business reduced. There are a few notable upcoming events which may have the potential to move markets, please see our more detailed note below.


EZ this week


From the Euro area, there are two key releases this week. The first is the ‘preliminary’ EU19 PMIs, which will shape our view of whether the continent is starting to find its way out of the weak patch in February. Our forecast is not, however, an upbeat one; we look for a further decline from 51.0 to 50.5 in the Composite. The second release will be the account to the ECB’s 24 January meeting. We intend to analyse this for information on the weight of opinion of the Governing Council over whether the weak patch is likely temporary or more persistent, after the ECB President highlighted the two opposing views amongst Council members in his post-meeting press conference. The balance of opinion, and of course the upcoming data, will shape expectations of whether the ECB will revise its policy guidance at the next meeting.


Brexit update – growing division ahead


Theresa May will continue to push for changes to the withdrawal agreement. In a letter to her Conservative Party MP’s over the weekend, after Thursday’s humiliating parliamentary defeat, the PM issued another plea for unity to her Conservative Party colleagues and also vowed to continue to lobby EU leaders for concessions. Her tour seemed to reach a breakthrough over the weekend, as British press reported that Emmanuel Macron had offered legally binding assurance of the temporary nature of the backstop at their meeting over the weekend. However the reports were quickly denied by the French government who reiterated that their stance on the withdrawal agreement was that of the EU.


Aside from Theresa May, Foreign secretary Jeremy Hunt will travel to Berlin and Brussels during the week, while the Brexit secretary is due to meet with EU chief negotiator Michel Barnier today. Attorney General Geoffrey Cox is also expected to further outline exactly what changes or assurances the UK would require to avoid an indefinite backstop on Tuesday.


There are also reports that May will be confronted by Remainers in her party this week who will put pressure on the PM to request an extension rather than be forced to do so by a parliamentary vote.


In the Labour Party, Brexit related division is also growing. A number of senior MP’s have announced a press conference at 10am this morning, where they are expected to announce their resignation over Jeremy Corbyn’s inability to change Theresa May’s course on Brexit.  


Economic releases


10.00 UK        Labour MP’s press conference

          US        Public holiday Presidents day