Competitiveness a big 'concern'

The short-term prospects for the Irish economy are positive but the Republic's international competitiveness remains a source…

The short-term prospects for the Irish economy are positive but the Republic's international competitiveness remains a source of "major concern", according to the latest economic analysis from the Central Bank and Financial Services Authority of Ireland.

The Bank's Spring Quarterly Bulletin, published yesterday, shows that the State's competitiveness has fallen about 15 per cent since economic and monetary union came into effect in 1999.

Mr Tom O'Connell, head of economic analysis and research with the Bank, said the situation where absolute price levels in the State are higher than those in the euro-zone, the UK and US was a problem.

"A key policy objective must be to restore competitiveness," he warned, pointing to the high inflation rates recorded in the Irish economy over the past few years.

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Since the the euro launch five years ago, cumulative inflation has been 11 per cent across the euro zone but 22 per cent in the Republic.

Mr O'Connell acknowledged that the decline recorded in domestic inflation over the past year was "satisfactory", but he was less positive on its composition.

He said the gap between goods and services inflation was still "a little bit uncomfortable", with services sector inflation set to grow 3.6 per cent this year, while goods inflation is forecast to climb by less than 1 per cent.

The national pay talks that began earlier this month need to be conducted against a backdrop of 2 per cent inflation, according to Mr O'Connell.

The Bank has substantially raised its economic forecasts for 2004 since its Winter Bulletin at the end of last year.

It is now expecting growth in gross domestic product of 3.75 per cent for this year, up from a previous forecast of 2.25 per cent.

Gross national product, which excludes the profits of foreign-owned businesses, is expected to come in at 3.25 per cent. This compares to a prediction of 2.75 per cent a few months ago and leaves the Bank around the middle of a range of forecasts that have emerged over the past few weeks.

Úna McCaffrey

Úna McCaffrey

Úna McCaffrey is Digital Features Editor at The Irish Times.