In the realm of business and economics, certainty remains an elusive concept. However, there are discernible trends that have shaped the landscape. One such trend, which began in 2014, has been the consistent increase in the value of Irish exports. As the Irish economy rebounded from the financial crisis earlier in the last decade, exports followed suit. Since their dip to €89 billion in 2013, the value of total exports has been on a steady incline, more than doubling since then to reach a record €208.59 billion last year. Remarkably, this positive trajectory endured despite the disruptive influence of the Covid-19 pandemic on the global economy.
Yet, this year seems to introduce a shift in this narrative. It prompts us to question what has changed. Until late last year, exports were thriving, largely propelled by a booming pharmaceutical sector, which contributes significantly to Ireland’s external trade, accounting for 30-40% of the country’s total trade in goods. This trend extended into the first few months of 2023.
However, by March, the first signs of trouble emerged, with a decline in the overall value of exports compared to the same month the previous year. Notably, exports of medical and pharmaceutical products saw a €2 billion decrease compared to March 2022. By April, the decline in medical and pharma exports had deepened to €5 billion, leading to the first drop in Ireland’s headline export trade in nearly a decade. Yet, it wasn’t only the pharmaceutical sector encountering issues. Exports in electrical machinery and equipment, a previously reliable segment, also saw a decline of one-third, equivalent to €1.5 billion.
While there was a rebound in June, achieving the second-highest monthly export total ever recorded, it was curiously driven once again by the pharmaceutical sector. July exhibited a year-on-year increase as well. However, the most recent figures, released last week, showcased a further 17% decline in overall exports in August compared to the same month in 2022. Notably, organic chemicals, often used in pharmaceutical manufacturing, experienced a €5 billion decrease. In contrast, exports of medical and pharmaceutical products, comprising 43% of total exports, saw a 6% increase. Nevertheless, overall exports in this sector remain 6% lower during the first eight months of the year, amounting to €51.6 billion. Meanwhile, the value of exported electrical machinery, apparatus, appliances, and parts, including high-value goods like semiconductors, fell by 51% in the month and has plummeted nearly 41% for the year, amounting to €5.8 billion.
What might be the root cause of the pharmaceutical sector’s challenges? Ireland boasts a substantial biopharma manufacturing sector responsible for producing raw materials and finished products for the global market. Over 85 pharma companies operate in the country, employing 26,000 people directly and another 25,000 indirectly. Ireland stands as the third-largest exporter of biopharma goods globally, including prominent players like Pfizer and MSD. Pfizer, for instance, significantly contributed to controlling the pandemic by developing and manufacturing the Covid vaccine. However, there appears to be a connection between the drop in Ireland’s exports and the reduced production of Pfizer’s Covid vaccine and antiviral drug, Paxlovid.
In a broader context, the global semiconductor shortage has impacted Ireland’s electrical machinery exports. Ireland is one of the few countries that manufacture high-value microchips, including Intel. These microchips are essential components used in various products, from smartphones to vehicles. While the exact reasons behind the reduction in semiconductor exports remain unclear, the decline in Irish exports appears to result from challenges faced by the global ICT manufacturing sector. A substantial portion of semiconductors manufactured in Ireland are exported to China, which accounts for 70% of these exports, and shipments to the US have also dwindled. International policy changes and trade restrictions, such as those introduced by the Biden Administration in 2022, may have played a role in this decline.
This shift in Ireland’s export landscape highlights the broader risks associated with a heavy reliance on a small number of highly globalized, multinational-dominated sectors. It underscores the vulnerability of the Irish economy to factors like changes in global demand, structural shifts within industries or firms, and shifts in international economic dynamics. The concentration of exports in these sectors, while advantageous in periods of growth, exposes the economy to economic fluctuations and geopolitical changes.