Irish exporters are less competitive than the euro-zone average, despite the apparently impressive performance of recent years, according to a European Commission economic report published yesterday.
The Quarterly Report on the Euro Area said that Ireland's specialisation in the high-tech sector disguised the fact that the State's performance in terms of "pure market share" had deteriorated during the first three years of this decade.
"Once sectoral effects are taken into account, the Irish export performance appears quite weak relative to the euro-area average for the 2000-03 period," the report said.
The commission's analysts said that measures of the real effective exchange rate could overestimate Irish gains in competitiveness.
"Gains in competitiveness in Ireland in the late 1990s appear much less remarkable when corrected for the fact that the Irish export structure is skewed towards high-tech sectors where prices are falling rapidly.
"In that case, comparing average Irish export prices to the average prices of a basket of countries which are generally far less specialised in high-tech industries is quite misleading," the report said.
Between 2000 and 2003, Irish exports grew at the euro-zone average but "pure market share" fell by 11.3 per cent. The Commission's report says that "sectoral effects" - the advantage of specialisation - served to disguise Irish exporters' loss of competitiveness.
Overall, the euro-zone's export performance has remained relatively steady over the past decade and the economy picked up during the first three months of 2005. The report warns that the underlying strength of the economy should not be overestimated, however, as business surveys sent mixed signals.
Euro-zone growth in 2004 was the highest for four years but weak growth in world trade, high oil prices and the rise of the euro against other currencies served to put a brake on economic expansion. Domestic demand improved and the level of investment has increased slightly since the middle of last year.
"Hard data point to a pick-up of GDP growth during the first months of 2005 as the acceleration of global trade growth comes to a halt and domestic demand continues to improve Inflation has shown signs of easing but oil prices pose an upside risk to the short-term outlook for consumer prices and for household purchasing power," the report said.
Introducing yesterday's report, the Economic and Monetary Affairs Commissioner, Joaquin Almunia, defended the reform of the Stability and Growth Pact approved by EU leaders last month.
The European Central Bank (ECB) has criticised the changes to the pact, warning that it will raise interest rates if fiscal discipline becomes lax.
"I want to be clear that the pact has neither been weakened nor loosened, contrary to what some media reports suggested," Mr Almunia said.
