Guest Blog: Ireland’s international traders remain optimistic for 2016

Commenting on HSBC’s latest Trade Confidence Survey, CEO of HSBC Ireland, Alan Duffy, says that Irish businesses remain optimistic about trade prospects but have more confidence in the local than the global outlook. 

CEO of HSBC Ireland Alan Duffy.jpg

It is a measure of how far we have come as an economy that HSBC’s recent Trade Confidence Survey of 24 global markets saw Ireland at the top end of the rankings for positivity around its local economic outlook for the next six months.

Companies are right to be optimistic; we have all seen that the combination of wage restraint during the crisis years and the exchange rate effects of the ECB’s programme of Quantitative Easing have both provided a lift to Irish competitiveness.

Whilst the outlook will inevitably moderate as the value of the euro eventually normalises, an economic recovery in advanced economies across the world will likely help sustain a robust performance for Ireland’s export sector. In particular, Irish exporters are well positioned to benefit from solid performances by the UK and US.

In the longer term, Irish exports will benefit from growing levels of disposable income in emerging markets, and China will likely become one of our top export destinations in decades to come. However, in the near term, the advanced economies of Western Europe and the United States continue to be our biggest sources of export demand. As such, Ireland is relatively well placed to withstand any headwinds coming from a slowdown in emerging markets.

Despite these positives, overall exporter optimism has actually eased somewhat in Ireland in the last six months, with our Trade Confidence Survey Score for Q3 2015 at 110, down from 116 (Although still well above the neutral score of 100). This is reflective of reduced optimism in the performance of the global economy.

Illustrative of this, the proportion of Irish companies surveyed that expected the global economy to worsen slightly over the next six months has jumped 24 percentage points from 7 per cent to 31 per cent. The share of respondents who expect Asia to be the best opportunity for business growth over the next six months also fell by eight percentage points to 11 per cent, perhaps reflecting heightening concerns over a hard landing for China’s economy. In contrast, the share expecting Europe to have the best opportunities grew by seven percentage points to 60 per cent, no doubt on the back of the continuing Eurozone recovery.

This slip in confidence levels reflects the recent deterioration in the global trade environment. World trade growth has slowed sharply this year, with import volumes in leading emerging markets, such as China, Russia and Brazil, weakening significantly.

However, the recent downturn appears more cyclical than structural in nature.  As many of these economies benefit from strong economic fundamentals, they are likely to be an important driver of global economic growth and trade over the medium term.

Perhaps aligned to such caution over the global economy, currency and commodity price volatility have emerged as the top financial risks anticipated by Irish companies. With this in mind, many are looking at strategies to overcome these risks such as negotiating better terms with trade partners and internal cost cutting.

Across Europe, stronger competition is the single most dominant challenge for businesses trading internationally. In line with rising cost pressures and anecdotal reports that companies are reaching the limit on the amount of cost increases they are able to swallow before passing them onto consumers, the emergence of competitors who compete solely on price is outlined as the biggest challenge, with the majority of Irish firms also highlighting it as their main worry.

With such competition becoming a concern, differentiation becomes increasingly important. That is why many Irish corporates are focusing on improving customer satisfaction and employee skillsets as their main objectives for the next six months.