WTO report shows trade in goods fell far more sharply than that in services

TRADE AMONG nations collapsed in 2009. According to the recently published annual report of the World Trade Organisation (WTO), the decline in cross-border commerce last year was unmatched since the 1930s. The value of trade in goods and services fell by almost one-quarter, declining from just under $20 trillion in 2008 to $15.7 trillion.

Chart 1 illustrates the extent of the shrinkage, with trade in goods falling more sharply than that in services. The WTO attributes most of the decline in both to the huge contraction in demand that followed the eruption of the financial crisis in late 2008. It notes, however, that the global rebound in trade, which began a year ago, has been strong.

Ireland suffered a shallower decline in exports in 2009 compared to most other developed countries, according to the WTO. Chart 2 compares Irish trends in goods and services exports with those of the rest of the world. The better than average performance in 2008 means that Ireland has increased (very slightly) its market share of world exports since 2000. In US dollar-denominated terms, the value of Irish exports more than doubled over the course of the decade, marginally ahead of growth in world trade.

Scratch the surface, however, and the underlying picture for Ireland is very different from elsewhere. Internationally, trade in goods continues to dwarf trade in services (see Chart 1), even if the rate of growth of the former has been stronger over the long term, including over the past decade. For Ireland, sales of services to foreigners are worth almost as much of those of goods, as shown by Chart 3. Moreover, growth patterns of the two could hardly have been more different. The euro-denominated numbers from the CSO used in Chart 3 show that while the value of services exports increased by more than a factor of three from 2000 to 2009, goods exports were actually lower.

According to the WTO, Ireland was the ninth largest services exporter in the world in absolute terms in 2009, accounting for almost 3 per cent of the global total. Ireland is the second-largest exporter in per capita terms among the 30 largest services traders listed by the WTO.

If Ireland is unusual in its goods/services export mix, it is unique among developed countries in the proportion of exports accounted for by non-national firms.

Numbers collected by Forfás, which include only those companies supported by State agencies, show that foreign companies accounted for more than 88 per cent of exports in 2008 (the latest data available). If anything, the dominance is likely to be even greater – most financial services exports are not included in Forfás numbers and these are overwhelmingly generated by foreign firms operating out of the International Financial Services Centre. As Chart 4 shows, Ireland’s export growth over the current decade to 2008 was driven by foreign companies.

The export performance of home-grown companies over the 2000-2008 period was disappointing. The nominal value of their exports grew by just 47 per cent over that time, and foreign sales as a percentage of their total sales remained well below half.

The continued reliance on the domestic market was particularly marked in the manufacturing sector, where just €4 in €10 of sales came from exports. By contrast, the small but dynamic indigenous services industry has been internationalising at a clip.

Strong double-digit average annual export growth over the decade reduced dependence on the home market. By 2007, for the first time, more than half of sales revenues came from abroad.