Ireland’s competitiveness has not changed "dramatically" in the past year, but the cost of doing business here is beginning to fall, a new report said today.
However, there were some weaknesses highlighted by the latest benchmarking report from the National Competitiveness Council (NCC), including broadband speeds and costs, high electricity prices and low growth in productivity between 2004 and 2008.
The report, which assesses the strengths and weaknesses of the Irish economy compared to 17 other countries, found the cost base in Ireland remains high, but the country has a number of important strengths including a young, comparatively well-educated workforce; increasing research and development activity; and an improving infrastructure.
"Ireland’s current price competitiveness, although weak, has improved; the loss in price competitiveness between January 2000 and June 2009 has fallen to 30 per cent," the report said. This compares to a 35 per cent loss between January 2000 and April 2008.
Prices have fallen here in recent months. The report highlighted inflation as measured by the Harmonised Index of Consumer Prices (HICP), which excludes mortgage costs, fell by 1.7 per cent in the year to May 2009. This compares to a decline of 0.7 per cent in the EU.
Meanwhile, the country is making progress in innovation, improving its performance and achieving a score on the summary innovation index that is currently above the average of the 15 EU countries in the benchmarking report. Total spend on research and development has also risen, from 1.26 per cent of GNP in 2000 to 1.68 per cent in 2008.
Exporters have also performed relatively well to date, despite challenges presented by fluctuating exchange rates and a general decline in exports in the OECD region.
"While Irish exports of goods and services are expected to decline by 3.9 per cent in 2009, the OECD forecasts that OECD exports will fall by 16.5 per cent. The fall in the value of sterling is noted as a significant challenge, particularly for indigenous exporters who are focused on the UK market and compete against UK firms in other markets," the report said.
Spiraling growth rates in labour costs were slowed "significantly" in 2008, slipping below the average of the 15 EU countries included in the study.
However, the report said that non-pay costs, including utilities and services such as accountancy and legal fees, compare poorly with other countries. It found that Ireland industrial electricity prices aer the second most expensive of 14 EU countries, with costs 34 per cent above the average at the end of 2008.
The country is also continuing to lag behind in some areas, such as the availability of advanced broadband services. Ireland ranks 25th in the OECD in terms of its readiness to support next generation services, according to the report.
Rising unemployment could also present a challenge, the NCC said, with jobless figures significantly above the OECD average and younger and lower skilled workers particularly vulnerable.
The report recommends targeting export-led growth as a sustainable strategy to maintain living standards gained in recent decades and to secure long-term prosperity.
"Given the severity of our current economic position, it is now time for Ireland to achieve a swift improvement in competitiveness," said chairman of the National Competitiveness Council Don Thornhill.
"Difficult decisions are necessary to restore our international competitiveness. Without appropriate action, it is entirely possible for the Irish economy to enter a prolonged period of depressed economic activity and for the convergence of Irish living standards on other high-income countries to unwind."
