Competitiveness - Inflation is a real threat to our economy

THE Central Bank, predicting a slightly slower growth this year than last, could be seen as sending a shot across the bow in also pointing to the risks posed to the country’s export competitiveness by inflation.

In its quarterly economic bulletin it foresees this as seeming set to remain above the euro area average, although one would hardly need to be told that price levels in this country are already the highest in Europe.

Although forecasting that economic growth at 5.5% will only be fractionally below last year, the bank is relying on strong consumer expenditure driven by people cashing in their SSIA savings accounts.

A factor that must be taken into account, even though some sources anticipate a slowdown in house completions, is that construction should not be retarded as there will be substantial outlay on home repairs with the delivery of SSIA money.

While the Bank forecasts the creation of 71,000 new jobs in the economy, it is highly unlikely that they will be of the quality of employment like Motorola.

The reality is that the prediction of tens of thousands of new jobs will ring hollow to 350 staff there who are set to lose their employment in March. They will join the 440 other people made redundant by BUPA and FCI and bring to around 800 those who are forced to face the cold, economic facts of life. In some cases, their plight was compounded by the fact that dual salaries were drawn by couples from the same employment, now gone or about to be.

Minister for Enterprise, Trade and Employment Mícheál Martin, responding directly to the Motorola development, denied that the Irish economy was losing competitiveness, although warning that “vigilance” was needed in order to maintain competitiveness with other economies.

Vigilance was no armour to the Motorola workers because while the Minister said he did not know it was “coming down the tracks,” he also acknowledged it “was very clear that the company was in difficulty.”

Generally speaking, the Minister was correct in stating that we did not know what was coming down the tracks, although the situation could be helped somewhat if the country could be made a less expensive place in which to live.

In this regard there was a modicum of comparatively good news to come from the Central Bank when it said that there had been a levelling off in house prices.

It attributed rising interest rates, allied with an increased level of housing output as precipitating an easing in house prices, and certainly six interest rate increases since December 2005 could be expected to have a cooling influence.

They were an influencing factor which saw activity in the housing market fall back considerably back in the second half of last year.

The chances are that there will be two more 0.25% mortgage rate increases in the coming year and, apart from that, because other elements which affect house prices remain positive, the likelihood is that house prices will continue to rise.

However, purchasers will be able to take some small comfort from the fact that the annual review of house prices by Permanent TSB/ESRI predict increases of between three and six per cent.