IBEC issues economy warning

EMPLOYER'S body IBEC warned yesterday that an increasing lack of competitiveness could jeopardise Ireland's future prosperity.

Service inflation in particular, was a cause for concern, it said in its latest quarterly review.

Optimistic about economic prospects, more or less in line with the views expressed elsewhere by the ESRI, it is concerned with the fall in productivity.

IBEC chief economist David Croughan warned wages were drifting higher relative to the rest of Europe while service sector inflation has begun to "creep back up."

From 2000 onwards Mr Croughan said the downturn in the global economy and the strengthening euro caught us them off guard.

The net result was a 28% loss of competitiveness between 2002 and end of 2004, he said. From 2000 onwards high inflation took hold resulting from a weaker euro and rising oil prices. At the same time wages started to shoot up here and current Government spending went through the roof.

While stressing that the overall economic outlook is favourable for the next few years, Mr Croughan said IBEC's warning is a call to the Government and workers not to repeat the mistakes of that period.

"As we enter, hopefully, another phase of relatively strong growth, we must ensure that competitiveness does not slip further," he said.

That means keeping wages in check and inflation under control, he said. Wages are well ahead of the EU situation while service sector inflation is on the march again, he said.

It fell from 8% in 2001 to 2.7% by mid-2004. Figures for February show prices in the services sector were at 4.1% year-on-year.