Risk of repeating past mistakes as competitiveness comes under threat

The competitiveness underpinning Ireland’s economic growth — which has seen more people return to work — is under threat from a range of factors that need to be urgently addressed.

In its annual benchmarking report, the National Competitiveness Council (NCC) finds that inroads continue to be made in improving the cost ofdoing business here, with Ireland having moved from 25th to 16th in global competitiveness.

Improving access to credit, a more favourable start-up environment and better regulation have all contributed to that improvement as well asgeneral cost decreases since the economic downturn.

These competitive gains have laid the foundation for what is now Europe’s fastest growing economy with GNP growth of 5.2% last year being driven by a strong export performance and foreign investment.

That economic bedrock is now coming under attack from a number ofissues which need to be tackled with the same urgency as has been put into bringing down the country’s deficit and stabilising debt levels.

A combination of domestic and external factors could undermine ourcompetitiveness including rising wage costs, a strengthening euro and surging property prices.

“Ireland’s improving competitiveness performance over the period 2011-2014 has been central to the recovery in employment and economic growth. However, we remain a mid-table performer across most benchmarks of international competitiveness,” said NCC chair, Professor Peter Clinch.

“External factors — low energy prices and the weak euro — are currently boosting Ireland’s international cost competitiveness. While these factors are currently working in our favour they can be quickly reversed, eroding gains made to date. They also serve to shield us from harsh truths: Ireland’s continuing competitiveness is under threat, and there are indications that pressures are already emerging which are undermining our ability to compete internationally.”

Earlier this month, the Low Pay Commission recommended a 50c increase in the national minimum wage which is expected to come into effect from January.

The move was criticised by business representative body, Ibec which said there is insufficient evidence to support the hike, adding that many businesses would not be able to afford the increase.

The NCC said in its report that it too is concerned with the risk of increased labour costs if not accompanied by increases in productivity.

Other key areas of concern identified by the council include insufficient investment in transport, energy and broadband infrastructure to meet the needs of a growing economy.

Concern is also expressed over a narrowing range of export goods which continues to pose a risk to our economic recovery while more needs to be done to increase the level of entrepreneurship and investment in new sectors as a counterbalance.

“The council is concerned that as growth gathers pace, we are at risk ofrepeating past mistakes which would threaten the sustainability ofIreland’s recovery.

“In this regard, there is an urgent need for both the public and private sectors alike to manage proactively their cost base and drive efficiency, thus creating a virtuous circle between the costs of living, wage expectations, productivity and cost competitiveness,” said Prof Clinch.