Exports to lead Ireland recovery

Exports to lead Ireland recovery

The news today that the Irish alcohol sector is in turmoil has come as no surprise to anyone who has followed the plight of the country's economy in the last 24 months. What remains less certain, is when and where the sector will begin to recover.

The "Celtic Tiger", which was the term used to describe Ireland's stellar growth throughout the late 1990s and into the new century, has become more of a toothless pussycat.

"The Irish economy remains challenging and this year is likely to see continuing weakness in activity and employment," a PricewaterhouseCoopers (PwC) report out this week said.

Indeed, the Irish economy has had a dismal couple of years. And PwC's report says it will contract by 1.3% in 2010, following a fourth quarter in 2009 that saw a "substantial contraction". Investment activity is set to decline "significantly", the report continued, whilst the tight fiscal policy will also weigh on growth.

As our news piece today highlighted, nearly one in six jobs in Ireland's alcoholic drinks sector have been lost to the recession - that's close to 15,000 jobs in just 18 months.

"As predicted, 2009 turned out to be an even poorer year than 2008 for drinks sales and consumption in Ireland, meaning that it was the worst year for our industry in living memory," said DIGI chairman Kieran Tobin.

The figures out today - drinks volume sales fell by 9% in 2009 and are expected to fall a further 5% fall in 2010 - reflect a generally negative outlook by the industry on the market.

Diageo chief Paul Walsh recently confirmed that he did not see drinks sales improving in either of the troublesome markets of Spain and Ireland this calendar year. Meanwhile, the company, in February, shelved plans for a full-scale overhaul of brewing operations for at least 12 months due to the local economic pressures.

When you throw in the hugely troubling issue of cross border shopping, which continues to be driven on by the weak sterling in Northern Ireland, then 2010 does indeed look to be another bleak year for the Republic.

But, there may also be the first chinks of light breaking through.

PwC's report today said it was likely that the worst had passed, and noted a sense of "cautious optimism".

Interestingly, PwC Ireland's Ann O'Connell noted that: "Export led growth and a strong focus on innovation will be vitally important for Ireland's economic recovery." This reflection on the broader economy has strong parallels with the drinks sector.

There has already been some "innovation" - surprisingly some might say - from the state, with the announcement of plans to cut a whopping 20% on duty tax on drinks.

The move has been made to stem the loss of revenue caused by consumers travelling to buy cheaper drinks in Northern Ireland, but it may also help kick-start the sector as a whole. To opponents of the move it may seem like a blunt tool, but it's a brave one nonetheless and comes despite Ireland facing a heavy deficit. Its effects will be keenly watched by those lobbying for similar moves in other countries.

It was one of the small glimmers of hope that Tobin had to communicate today: "There is clear evidence that the benefits of this reduction have been passed on to consumers in order to provide a small boost to the drinks industry and the wider economy."

But PwC's report also points to exports as a potential panacea for Ireland and this certainly rings true for the drinks market. Whilst "Brand Ireland" may have taken a beating at home and on the financial markets, it remains in rude health among consumers around the world. The likes of Bushmills, Jameson's and Guinness should be amongst the first names to prosper as recovery takes hold in markets such as the US and Far East.