Paul Sweeney: Last year saw huge collapses in economies all over the world and a massive fall in trade. China overtook Germany as the world’s greatest exporter, a position it is likely to retain by virtue of its size. Ireland was 9th largest exporter of services in the world in 2009.
The 12% drop in the volume of world trade in 2009 was larger than most economists had predicted. World trade volumes fell only on three other occasions since 1965 (—0.2% in 2001, —2% in 1982, and —7% in 1975), but none of these falls approached the magnitude of last year’s economic slide (Chart 1). A factor which reinforced the 2009 trade slump was its synchronized nature. Exports and imports of all countries fell at the same time, leaving no country or region untouched.
Chart 1: Volume of world merchandise exports, 1965-2009 (click to enlarge)
(Annual % change)
Germany was the world’s biggest exporter until overtaken by China last year, though when it comes to exports of service, the US leads by a long haul.
What is most interesting is Ireland’s position as one of the greatest exporting countries in the world – for services. This in spite of our small size.
Ireland is in the top 10 exporting nations of the world in 2009 - at the 9th largest exporter of services as the table below shows (LHS). We sold $95bn in services last year. Interesting as the table also shows (on RHS), we are also big importers of services – even higher in the league, at 8th place, at $104bn. With a fraction of 1 per cent of the world’s population, we export almost 3% of services. This probably means that we import lots of IP software, add a bit of value and export it again. Yet services can have a very high value added and unlike goods, they are not losing as much in value terms – gaining in many instances - with falling terms of trade for goods.
Services exports in the world fell by 13% in 2009 to $3.31 trillion as the table below shows, but this was less than the overall collapse in merchandise trade of 22% in nominal terms. This was the first time since 1983 that trade in commercial services declined.
Services are of growing importance globally and especially for Ireland. In 2007 services exports made up 43% of total Irish exports - way up from just 21% seven years earlier. Exports of goods have been sluggish in recent years and with the collapse in trade worldwide, services exports have helped the economy significantly.
Leading exporters and importers in world trade in commercial services, 2009 (click to enlarge)
(Billion dollars and percentage)
a Preliminary estimate.
b Secretariat estimate.
Note: While provisional full year data were available in early March for 50 countries accounting for more than two thirds of world commercial services trade, estimates for most other countries are based on data for the first three quarters.
Ireland’s Balance of Payments is in good shape, with imports falling rapidly as demand falls. Domestic demand is collapsing due to rising unemployment and reduced consumption, thanks in no small part to the government’s deflationary policies and the uncertainty engendered, leading to greater savings. We had a whopping trade surplus of €38bn last year, with imports down a massive 29% on peak in 2007 in value terms. Irish exports only fell slightly in 2009.
The WTO is optimistic about the immediate future. It concludes, “After the sharpest decline in more than 70 years, world trade is set to rebound in 2010 by growing at 9.5%.” Will this rising tide lift Ireland’s wee boat, as the conservatives hope, in the face of falling demand?