Celtic tiger boom 'eroded by higher costs'

The cost of doing business in Ireland is slowly eroding the Celtic Tiger boom, it was claimed today.

Friends First said in a quarterly economic bulletin that overall competitiveness in the economy has been reduced during the past five years.

Chief economist Jim Power said: “The cost of doing business has increased significantly due to a combination of higher general inflation, strong growth in wages, adverse exchange rate movements, increased congestion and a significant increase in the cost of state services.

“The loss of competitiveness has started to impact on Ireland’s export performance, and growth in merchandise exports has slowed down dramatically over the last five years. This slowdown in export growth marks a major change from the conditions that characterised the Celtic Tiger period,” he said.

Friends First predicted in “Is The Future More Challenging?” that the first two years of the new Coalition Government will be more testing than any time over the past decade.

The bank said the sharp slowdown in housing activity will also put pressure on tax revenues and jobs in the economy.

Mr Power said the Government will have to lower costs and improve competitiveness by controlling public spending and public sector pay.

In 2008, GDP growth is expected to fall back again to 3.8% – the lowest growth rate in 15 years.

The Government may deliver a more cautious Budget in December than might have been expected.

“All the evidence suggests that Ireland remains vulnerable to a short-term slowdown in the construction industry,” said Mr Power.

“In 2006, residential housing activity accounted for 64% of total output in the construction sector.

“Employment in construction accounts for 13.6% of total employment in Ireland. Over 93,000 houses were built in 2006, and with completions likely to ease back to 70,000 next year, there will be an obvious knock-on impact on employment.

“The live register reached 163,400 in June, its highest level in almost three years. Over the past three months, the number of people on the live register has increased by 5,900, which is the largest jump in four years. The slowdown in construction is starting to take its toll,” warned Mr Power.

He said inflation is likely to have peaked at 5.1% earlier this year and an overall average rate of 4.7% is expected for 2007.

He warned about the spectre of significantly higher food prices over the next couple of years in line with global trends.