Exporters fear exchange rate crisis

AN EMERGING exchange rate crisis is threatening the survival of many Irish exporting businesses and may accelerate job losses, the Irish Exporters Association (IEA) warned yesterday, as the euro traded at record highs against sterling and the dollar weakened ahead of the US Federal Reserve's rate cut.

The IEA said exchange rate losses over the past 12 months had "severely hit the profitability of many exporters" and was exacerbating problems caused by bad debts, falling demand for exported goods and services, cash flow constraints and high labour costs.

IEA chief executive John Whelan said the Government's new economic recovery plan must include measures that promote exports into non-sterling markets. He also called for immediate action to be taken to alleviate the problems faced by exporters.

"Many exporters may not last while a new longer term plan is put into place," he said.

IEA president Liam Shanahan said exporters would have to review all of their input costs, including wages: "Failure to do so now will accelerate job losses and business closure," he said.

Irish exporters to the UK have suffered a 20 per cent exchange rate swing in less than six months, with the euro breaking through the 90 pence level for the first time on Monday. It hovered close to that level for most of the day, trading as high as 90.45 pence late yesterday evening.

In more good news for euro zone holidaymakers and bad news for exporters, the dollar fell to a two-month low against the euro on speculation that the Federal Reserve would could its target lending rate to near zero.

In a surprise "range" cut, the Fed cut its target for overnight interest rates to zero to 0.25 per cent.

However, euro zone interest rates are unlikely to fall as low as US rates. European Central Bank (ECB) president Jean-Claude Trichet said in Frankfurt on Monday that there was a limit to how far the central bank can cut interest rates and he signalled that policymakers may pause from cutting rates at its next policy meeting on January 15th.

The ECB governing council has cut rates three times since early October, taking the base rate from 4.25 per cent to 2.5 per cent.

ECB officials have indicated that they are reluctant to cut borrowing rates much further. But some investors are betting that the deepening recession in the euro zone will force the ECB to slice at least another 25 basis points off its key rate in January.

Eurostat, the European Union's statistics office, said yesterday that the number of people employed in the euro zone fell on a quarterly basis for the first time since records began in 1995, pointing to rapidly weakening consumer demand and strengthening the case for lower interest rates.

Employment fell by 0.1 per cent or 80,000 people across the euro zone in the July-September period, to 146.1 million.

- (Additional reporting: Bloomberg /Reuters)