Exporters say relief brought about by weaker euro may not last long

THE WEAKENING euro is providing some relief for margin-hit exporting companies, but the limited respite from unfavourable exchange rates is expected to be brief, exporters said yesterday.

The euro declined for a fourth day against the dollar ahead of a meeting of European finance ministers to discuss details of a possible bailout for Greece.

The single currency fell close to a nine-month low, slipping 0.2 per cent to $1.3591 yesterday. It also declined against sterling to 0.8687 pence, compared to 0.8697 pence at the previous closing rate.

“We’re looking at a situation where the euro is weakening against the pound and the dollar, which will make exporters’ position in the UK and US markets more competitive.

“But we have a long way to go to get back to the competitive position we had 18 months ago,” said John Whelan, chief executive of the Irish Exporters’ Association (IEA).

While turbulence in the euro zone could undermine the fortunes of many Irish exporters, in sectors such as the food and drink industry the weaker euro, relative to sterling in particular, has been welcome. Some 43 per cent of Irish exports are shipped to the UK.

“Even with these adjustments, the margins are still extremely tight,” said Mr Whelan.

The euro strengthened to 94 pence as recently as October 2009, partly as a result of the UK’s economic policy to keep sterling weak. It is now at a six-month low versus the pound.

But Mr Whelan said the euro-pound rate needed to go below 80 pence to prevent job losses in the food and drink sector.

He said while there may be the “odd spike” in sterling versus euro – in this case as a result of the Greek uncertainty – the longer exporters have to continue to trade above the 80 pence rate the more difficult it is for them to survive. This was because some companies may have hedged against short-term adverse movements in currency rates or been able to offset them temporarily. Companies had got used to a euro-sterling rate in the mid-70s.

The trend for a stronger euro against the dollar in recent years has not been as costly to Irish exporters, largely because the indigenous companies that export to the US, such as biotech companies, are not as price-sensitive as the food and drink sector.

Mr Whelan said he expected that the euro would “bounce back” against sterling and the dollar once “a deal is done to support Greece”.

Although there have been several moves to encourage exporters to be less dependent on the UK, opening up new revenue channels in the euro zone has been more difficult than expected.

“It’s a bigger challenge that perhaps has been realised by the various agencies,” said Mr Whelan, who cited a retreat by the world’s largest retailer, Wal-Mart, from Germany in 2006 after it found it was unable to replicate its US success in continental Europe.

The IEA’s food and drink council said on Friday that food exports to the UK remained well below “pre-crisis levels” and would remain so throughout 2010, “despite the small appreciation of sterling in recent days”.

The IEA forecasts that food and drink exports will grow by just 2 per cent in 2010, after a year in which agri-food exports fell 14 per cent to just over €6 billion, and beverage exports declined 21 per cent to €973 million.