Irish dairy giants warned of exposure to slowing Chinese economy

Ireland’s largest dairy businesses have been warned over their exposure to a slowing Chinese economy in the latest analysis by researchers at the Economic and Social Research Institute (ESRI).

In its Quarterly Economic Commentary, Autumn 2015, it said that there are concerns, from an Irish perspective, that a continued slowdown in China could have a damaging effect on agriculture and food markets, particularly given the weakness in the Irish sector in 2015.

According to the ESRI while only 2% of all of Ireland’s exports go to China (compared to 80% that go to the EU, US and UK combined) certain dairy processors such as Glanbia and Kerry Group have direct exposure to the Chinese market and could be negatively impacted in future months.

It said exports of Irish agri-food produce to China will likely remain weak for the foreseeable future given currency movements.

In recent months, uncertainty regarding growth in China has been the cause of much concern for the global economy.

Following the surprise devaluation of the yuan in early August and disappointing data released in the same month, suggesting that China’s industrial activity is slowing sharply, stock markets globally experienced a sharp decline at the end of August.

Currency movements

In its analysis the ESRI said the depreciation of the euro against the Dollar and the Pound Sterling and continued domestic growth in the US and the UK indicate a positive outlook for Irish exports in 2015.

Taking into account these developments and the recent trade data from the Quarterly National Accounts, the ESRI forecast growth in total exports to be 11.1% in 2015.

It said given the continued buoyancy in the economy and particularly the pick-up in domestic consumption, we also expect import growth to remain strong in 2015, increasing by 10.5%.

Strong Irish GDP growth in 2015 and 2016

The strong economic growth currently being observed is expected to continue into 2016, with Ireland’s Gross Domestic Product (GDP) forecast to grow by approximately 6% in 2015 and 4.5% in 2016, according to the ESRI analysis.

Researchers predict a growth in GDP of 6% in 2015 and of 4.5% in 2016. Declines in unemployment are also expected, with the headline rate envisaged to fall to 8.1% by the end of 2016.

Speaking about the report, Dr Kieran McQuinn (ESRI) said it believes the pace of growth has accelerated in the economy and it now forecasts an increase in GDP of 6% this year and 4.5% in 2016.

“A notable feature of economic performance this year has been the increase observed in personal consumption indicating that households are finally beginning to experience the recovery,” he said.

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