When the current construction and consumption boom passes, the economy may be less able to compete internationally, an independent advisory body warned yesterday.
The National Competitiveness Council, in its annual benchmarking report, Benchmarking Ireland's Performance, warns that while higher standards of living are welcome, trade competitiveness and a growing export base remain critical to long-term prosperity.
"When the current consumption and construction boom runs its course, as it inevitably must, there is a danger that the Irish economy may be left with an artificially-inflated cost base and a depleted stock of companies, managerial know-how and technological sophistication, to compete in international markets," the report says.
The council identifies eight areas of concern it believes may weaken Ireland's international competitiveness.
As well as a shifting export/import balance driven by growth in consumption, the report also identifies: weak security of energy supply and an urgent need to diversify sources of energy; slowing productivity growth, reflected in increasing unit labour costs, especially in utilities; falling numbers in both traditional and modern manufacturing; rapidly growing levels of personal debt, arising from the house price boom, and increased costs, including in key services such as IT and utilities.
Remaining problems were in education, including small pre-primary and PhD education sectors, low computer student ratios in secondary level, and low research and development links between industry and education.
Lastly, the report says the utilities sector is of particular concern.
"There is a productivity gap between Ireland and the US of 60 per cent, high costs and deteriorating unit labour costs in the sector. Market incumbents still retain a large market share, unlike in other economies."
Speaking at the publication of the report, the chairman of the council, Dr Don Thornhill, said it was important to remember that the story of the Irish economy was a good news.
"Ireland is a great success story," he said. "We are doing well compared to other countries and, in so far as it can be measured, life is getting better."
He said that given the shift to consumption and construction, the drivers of the economy, it was not surprising that the productivity growth rate had slowed. However, there were concerns about the cost environment, physical infrastructure was still a problem, and there was still "decades of catch-up" required in research and development.
The Minister for Enterprise, Trade and Employment, Micheál Martin, said the report showed Ireland ranked first in the EU for entrepreneurial activity and private capital investment, and first in the OECD for attracting greenfield foreign direct investment.
"This indicates healthy activity in both the indigenous and foreign-owned sectors of our economy," he said.
