Exports 'boosted by productivity'

The Republic may have gained market share in the export market last year because of increased productivity, a new analysis from Bank of Ireland said today.

Dr Dan McLaughlin, the bank's chief economist, said the Republic outperformed other European states in the external sector last yearm with the volume of Irish exports declining by 2.3 per cent, compared to 13 per cent in the wider euro area.

"This implies Ireland gained market share which sits uneasily with the widely held perception that the economy has lost competitiveness in recent years," Dr McLaughlin said.

"It is true that Irish hourly earnings in manufacturing have risen by 69 per cent over the past decade, against a 39 per cent rise in our main trading partners, but Irish productivity has also outpaced the competition, with the result that Irish unit labour costs in manufacturing have fallen 14 per cent relative to our trading partners over the past decade, according to Central Bank data."

He said the growth had been mainly driven by the multinational sector, which increased output last year, compared to a fall of 14 per cent in the indigenous sector. Profits at multinationals were up too, he said, explaining why gross domestic product fell less heavily than gross national product last year.

As a whole, the economy contracted by 7.1 per cent in GDP terms in 2009, while GNP was down by 11.3 per cent.

Dr McLaughlin noted that the GDP decline was a steeper fall than the euro-zone average, which was 4.1 per cent, but was not the worst performance in Europe.

Finland's GDP fell 7.8 per cent in the same period, while Latvian output fell by 18 per cent, and Lithuania recorded a 15 per cent decline.

"Last year's contraction in Ireland was steeper than the euro area for two main reasons. First, capital spending generally fell heavily across most developed economies and by 11 per cent in the single currency area, but in Ireland the fall was some 30 per cent, including a 34 per cent fall in building and construction," said Dr McLaughlin.

"Consumer spending also fell across the EU area, by 1.1 per cent on average, reflecting falling employment and slower wage growth. In Ireland employment fell precipitously, by over 8 per cent, and wages also fell on average, which partly explains why the fall in Irish real consumer spending, at 7.2 per cent is unusually large, but Irish households also appear to have cut discretionary spending by more than the fall in disposable income."

Dr McLaughlin said Irish people were also saving more, with the ration likely to be around 12 per cent, up from under 3 per cent in 2007.

However, despite the drop in GDP, Ireland outperformed other European states in the external sector, with the volume of Irish exports falling only 2.3 per cent compared to 13 per cent in the wider euro area.

House-building, meanwhile, now accounts for only 2.5 per cent of real GDP, compared to a 12 per cent share in 2005.