Relying on Pharma to drive economic growth is not healthy

I have been quite puzzled for some time about just how complacent the markets have been about the prospects of a disorderly Brexit.

Relying on Pharma to drive economic growth is not healthy

I have been quite puzzled for some time about just how complacent the markets have been about the prospects of a disorderly Brexit.

There has been a sense in markets that when push comes to shove, sanity would prevail and a deal would be done with the EU to engineer a soft Brexit.

That, of course, is still possible, although anybody observing the Tory leadership campaign would not be filled with confidence.

We have seen many mixed and confused messages from Jeremy Hunt and Boris Johnson, but both have categorically ruled out acceptance of the backstop element of Theresa May’s withdrawal deal.

To date, the EU has - of course - insisted that this is an immovable part of the deal. It remains to be seen what impact the changing of the guard in Brussels might have, but the early indications would suggest that not much will change.

Perhaps here in Ireland it is time we started to debate if insistence on the backstop is the correct strategy, accepting that there is no easy or pain-free option.

The reality is that the backstop has been the central and, arguably, only pillar of the Irish Government’s approach for some time and it has backed itself into a tight corner.

Any backing away from this position would be written up as a massive U-turn and, naturally, opposition politicians would seek to wreak political havoc.

That is the sad reality of politics. For Ireland and for much of the EU, particularly Germany, the best outcome would be an orderly UK exit from the system as a no-deal situation would seriously damage important flows of trade between the UK and many EU countries, but particularly Germany and Ireland.

It is far from clear that a cost-benefit analysis would now support an insistence on the backstop that is most likely to eventually culminate in the UK crashing out without the prospect of a negotiated trade deal.

Perhaps it is time to start considering and debating alternatives.

Meanwhile, currency markets are starting to behave less complacently and this week sterling hit its lowest levels against the euro since late December last year.

Any move above 90 pence certainly spells trouble for Irish exporters to the UK and makes cross-border shopping a very viable option for southern shoppers.

This renewed currency weakness comes at a time when business confidence, in general, appears to be somewhat more fragile, at least based on business surveys and some anecdotal evidence.

Mind you, the latest external trade data is not suggestive of any problems. In the first five months of the year, total merchandise exports were 13.5% ahead of the same period in 2018.

Sales of goods to the UK were up by an impressive 9%, although the UK accounted for just 10.9% of the total.

However, sales of food and live animals to Britain accounted for 34% of total exports of this commodity.

The overall trade data for the UK should not detract us from recognising just how dependent the agri-food sector is still on the British market. It is also worth noting that chemicals and related products accounted for a massive 62.3% of total exports.

This massive over-dependence on the mainly foreign-owned pharmaceutical sector was further highlighted last week with the release of the national accounts for 2018. The revised data show that GDP expanded by 8.2% last year.

This comprised growth of 3.4% in personal consumption expenditure; investment declined by 24.7%; and exports of goods and services expanded by 10.4%.

Notwithstanding the distortion created in the investment data by intellectual property (IP) transactions, the overall data on the surface create a rather pleasant picture.

However, we should not lose sight of the incredible distortion created by activities such as IP and aircraft leasing.

The CSO now publishes a measure of activity that seeks to remove these distortions and which provides a more realistic assessment of what is happening on the ground in Ireland.

This is rather strangely titled GNI*, but it shows that in 2018 GDP was valued at €324bn, but GNI* was over €126bn lower.

This is a salutary statistic and one our policymakers - and everybody else for that matter - should not lose sight of. We are doing well, but not as well as some data might suggest.

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