The National Competitiveness Council (NCC) fired the warning shot as official figures showed the country’s economy was continuing to grow at an exceptionally strong rate, far outpacing our European neighbours.
The economy expanded by 6.5% in the first quarter of the year compared to the same period last year, according to the Central Statistics Office (CSO).
The statistical body also rewrote Ireland’s recent economic history in a more favourable manner by revising upwards last year’s growth figures which were already the strongest in the EU.
Goodbody chief economist Dermot O’Leary hailed the figures as “pretty spectacular” and another confirmation of economic momentum which now sees Ireland growing at six times the euro area aggregate.
However, the Competitiveness Council sought to keep policymakers’ feet firmly on the ground by issuing a stark warning that the competitiveness on which the recovery has been built is vulnerable and should not be taken for granted.
Council chair Peter Clinch warned that while the economy was now thriving, the country was at risk of repeating the mistakes of the past.
“The immediate challenge is to sustain the recovery under way by remaining competitive,” said Prof Clinch. “While growth prospects are likely to be strong, we must continue to deliver aggressively the structural reforms required to support competitiveness, productivity and growth.
“The council is concerned that as growth gathers pace, we are at risk of repeating past mistakes which would threaten the sustainability of Ireland’s recovery.”
He signalled an “urgent need” for public and private sectors to be proactive in managing their costs and ensuring further efficiency gains are made.
The reward for acting responsibly now, he said, was keeping costs down to facilitate further business growth, and working together to secure the recovery was a virtuous cycle between the cost of living, wage expectations, productivity and cost competitiveness.
A number of areas in urgent need of attention identified by the council’s report include surging property prices, childcare costs, insurance and rising labour costs.
The Low Pay Commission’s recent recommendation to increase the national minimum wage by €0.50 was last week criticised by business bodies such as Ibec which had said the decision lacked economic evidence.The Irish Small and Medium Enterprises Association (ISME) went further claiming the “lunatics have taken over the asylum” in reference to what it deemed to be a politically-driven increase that would pile further pressure on those SMEs yet to feel the reward of economic improvements.
Additionally, areas of concern surrounding the country’s infrastructure which could jeopardise the foundations of the recovery were identified.
The council concluded that there has been insufficient investment in transport, energy and broadband infrastructure to meet the needs of a growing economy.
With a significant windfall expected to be at the Government’s disposal after yesterday’s GDP figures revealed the strength of the recovery, an opportunity now exists to channel additional funding into capital investment projects to deal with such infrastructural deficits as some commentators have previously recommended.
The risks are not solely domestic, however, with international factors that are currently working in our favour liable to turn quickly with unpleasant consequences.
“Ireland’s improving competitiveness performance over the period 2011-2014 has been central to the recovery in employment and economic growth,” said Prof Clinch. “However, we remain a mid-table performer across most benchmarks of international competitiveness.
“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 the gains made to date.” “They also serve to shield us from some 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,”