Report casts doubt on Ireland’s ability to compete in eurozone market

AS the European Commission forecasts rising growth for the eurozone, a new report raises serious doubts about this economy’s ability to win a slice of that expanding market.

Economic growth in the 12 euro nations will accelerate to the fastest pace in more than two years by the end of 2006, the European Commission said.

Domestic spending will add momentum to the export-led expansion creating growth of 0.8% in the fourth quarter.

The commission’s forecast suggests the eurozone economy will expand 2.2% this year, the most since 2000, Holger Schmieding, co-head of European economics at Bank of America in London, said.

James Nixon, an economist at Societe Generale SA in London said: “A strong global economy is feeding into the European economy and it all should be very positive going forward.”

However, the Central Bank’s annual report for 2005 has questioned the ability of the Irish economy to compete in Europe and internationally.

Governor of the Central Bank John Hurley said our strong growth has been dominated by labour-intensive sectors such as construction and services.

As a result, the productivity levels in the economy have fallen dramatically.

In the latter half of the 1990s, average productivity was 3.5% per annum in sharp contrast to the figure of 1% per annum for the past two years.

Mr Hurley said the decline in productivity has been marked in Irish manufacturing.

Productivity determines our competitiveness and this has been slipping dramatically, he said.

Manufacturing was the sector that typically delivered double digit productivity growth in the 1990s in particular. Last year, that was just 3%, but a marked improvement nonetheless on 2004 when the growth figure was a modest 0.5%, he said.

And while there are some signs of an improvement in the exports market, Mr Hurley called for a major effort to improve trend productivity across the economy as a whole.

That is necessary to ensure that the economy is not badly exposed when the slow down in construction comes as the housing market eases back from its current levels of activity,” he said.