INVESTOR: The current euro rate is enhancing Ireland's competitive position in the all-important British and US export markets.

Since its launch, the euro has plotted a downward course against all the other major currencies, with the exception of the ailing Japanese yen.

Even against the yen, the euro initially declined during 1998, but has regained some ground since 1999. Recent weeks have witnessed a further slide in the currency's value, with the euro/US$ exchange rate falling to 0.86.

One euro will now only buy 86 US cents compared with $1.18 around the time of its launch. For close on two years now, economists and currency analysts have been wrong-footed in respect of the consensus view that the euro would strengthen.

This consensus at the start of 2002 was yet again forecasting a strengthening in the value of the euro over the course of the year. The more optimistic of these forecasts saw the euro gradually climbing back to parity against the US dollar.

This now looks like a forlorn hope given the recent further slide in the value of the euro, which has fallen by about 3 per cent against the dollar since the turn of the year.

The euro has even declined against the yen, albeit by a more modest 1 per cent, even though the Japanese economy is faced with seemingly intractable economic and financial imbalances. A sense seems to be growing in the market-place that the euro missed its opportunity to appreciate during 2001.

Early last year when the US economy was slowing down, it did seem as if a period was in prospect when the European economy would outperform the US economy. This did occur to a limited extent as the US went into recession over the course of the year.

However, Europe was not immune to the key force that created the American recession, namely the collapse in business investment. Nevertheless, the economic slowdown in Europe was much shallower than in the US, giving some credence to the view that the euro was undervalued.

Economic data released in the first month of the New Year now indicate that the US economy may already be pulling out of recession. The aggressive easing in monetary policy by the Federal Reserve in reducing short-term interest rates to 1.75 per cent looks as if it will succeed in rekindling US economic growth.

In contrast, the European Central Bank (ECB) was very slow to reduce European interest rates, which, at 3.25 per cent, remain well above US rates.

Therefore, another year of low to moderate growth seems to be in prospect for the European economy in 2002. There is also a lingering suspicion that the ECB will continue to be slow and indecisive with respect to interest rate policy. In contrast, most analysts believe the Federal Reserve will maintain interest rates at sub-2 per cent until it is absolutely clear that vibrant growth has resumed.

For the Irish economy, the failure of the euro to strengthen is mainly good news. Several financial analysts have pointed out that a strengthening in the euro exchange rate could exacerbate the Irish economic slowdown. A stronger currency would have a negative impact on Irish competitiveness, particularly in relation to the UK and US export markets.

Whilst the extent of this risk was probably overstated in the first instance, the current euro exchange rate is enhancing Ireland's competitive position in the all-important British and US export markets.

The weaker exchange rate will of course tend to put some upward pressure on the inflation rate. However, a sharp fall in the value of the euro from current levels seems unlikely, so that the inflationary threat is minimal. Also, the slower pace of economic growth both at home and abroad is already reducing inflationary pressures. Therefore, on balance, the modest weakening in the value of the euro is a positive for the Irish economy.

Already, low interest rates seem to be having the effect of sustaining economic growth so that the prospects for the economy seem to be brightening by the day. Despite international diversification by many Irish quoted companies, Ireland is still the most important geographical area for the majority of these companies.

Therefore, good news on the Irish economy is good news for the stock market, and the odds that the Irish equity market can outperform its international peers for a third year in a row have improved.