Irish export growth to UK plummeted last year

The Republic's export growth to the UK, which accounts for €7.5 billion, slowed to 2 per cent last year compared with 12 per cent in 2015, according to the National Competitiveness Council.

In its 2017 competitiveness scorecard for Ireland, published on Thursday, the council examines a number of indicators that are assessed individually, rather than providing a single quantifiable measure of competitiveness.

The 124-page report finds the State “performs relatively well” in objective measures of well-being and health, including on income, education attainment, air and water quality.

As a result of “exceptionally strong” economic growth in recent years, Ireland’s GDP per capita was the second highest in the euro area in 2016. Disposable gross income fell during the recession but has increased since 2013.

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Business performance

The risk-of-poverty rate (16.3 per cent) was below the euro area average (17.2 per cent). The risk of in-work poverty for working households was also below the euro area average at 4.8 per cent, which was down from 5.5 per cent in 2010.

In terms of business performance, Ireland is described as “one of the most open economies in the EU”.

Exports increased from 103 per cent of GDP in 2010 to 124 per cent in 2015. Ireland’s share of total global export markets was 1.3 per cent as of 2015.

Enterprise Ireland client exports grew by 6 per cent in 2016 reaching a record high of €21.6 billion. Export growth to the UK, however, which accounts for €7.5 billion of exports, slowed from 12 per cent in 2015 to 2 per cent in 2016.

From a sectorial perspective, the food sector reported the largest decline, with the value of food exports to the UK falling by 2.8 per cent while non-food sectors saw exports increase by 6.4 per cent.

While exports have been the “primary engine” of economic growth in Ireland in recent years, the composition and range of goods exported has become “increasingly concentrated”.

Computer services account for the largest share of exported services to the EU (including the UK), US and the rest of the major export destinations, apart from Luxembourg.

Indigenous enterprise

Building on strong growth in 2015, the activity level of foreign direct investment and indigenous enterprise in 2016 was “exceptionably strong” in terms of export growth, jobs created and new investment.

On the “cost of doing business”, Ireland remains a “relatively expensive” location. The State’s price profile is described as “high cost, rising slowly”.

Ireland regained cost competitiveness as a result of falls in relative prices, low inflation and favourable exchange rate movements. This made Irish firms “more competitive internationally” and made Ireland a more attractive location in which to base a business.

The openness of the economy meant the competitiveness of the enterprise sector was “particularly vulnerable” to negative price and cost shocks which were outside the influence of domestic policymakers.

These included unfavourable exchange rate movements, higher international energy prices or imported inflation from our major trading partners.

The report also noted that Irish income tax system was “progressive”, particularly at low and middle incomes. Ireland “remained competitive” in terms of the levels of income tax and social security contributions as a proportion of total labour costs.

However, the State’s marginal tax rate was “high at higher incomes” with the highest rate applying at just below the average industrial wage, compared to the UK’s rate applying at 4.2 times the average industrial wage.

Employment levels

On employment, growth in the first quarter of 2017 was spread relatively equally across the different sectors of the economy with employment growing in 11 of 14 economic sectors.

Consistent with the increase in employment levels, unemployment and long term unemployment were on a “steady downward trajectory”. The number of unemployed and long term unemployed persons in the first quarter was 146,200 and 78,655 respectively.

There was evidence of “higher than average” job vacancy rates in a number of sectors.

In terms of the State’s physical infrastructure, investment was “recovering”, according to the report, which found inland capital investment as a percentage of GDP (0.4 per cent) “low relative to pre-crisis levels”.

Overall, the principle contribution to economic growth came from domestic demand such as investment and consumer spending.

Exports in Ireland increased from 103 per cent of GDP in 2010 to 124 per cent in 2015. Ireland had the second highest level of exports as a percentage of GDP in the OECD after Luxembourg.