IBEC wants urgent action to arrest fall in competitiveness

The Republic will become the most expensive economy in the EU by 2004 if pay growth is not stemmed immediately, employers' group IBEC warned yesterday.

The body has called for urgent action to be taken to address the Republic's competitiveness. The warning comes as a new study shows the Republic's economic competitiveness to have declined dramatically over the past year.

The Global Competitiveness Report, published by the World Economic Forum, ranks the Republic as the 24th most competitive economy in the world, down from an 11th position last year.

The forum does not outline specific reasons for the decline, but it is likely that a sharp weakening in economic growth and a less- impressive technology environment has led to the fall.

If measures are not taken to address competitiveness now, jobs will continue to be lost at the rate of 500 a week, IBEC believes.

In the first 10 months of this year, 21,000 redundancies were notified to the Department of Enterprise, Trade & Employment. Of these, 8,500 jobs were lost in manufacturing.

"At a time when discussions are taking place for a successor agreement to the PPF, this continuing trend of job losses emphasises the need to restore competitiveness to centre stage in any new agreement," IBEC said in a statement.

The body is calling for policies that focus on job retention and job creation as well as pay moderation.

"If we are to restore some of the competitiveness lost in recent years, pay growth must be below that of our main trading partners," IBEC said.

Over the five years to 2001, economy-wide earnings rose by 35 per cent in the Republic compared with 12 per cent in the euro zone, according to IBEC.

"If we are moderate in our expectations, we will be able to ride out the present downturn in world trade and ensure that when the upturn comes we are well placed to take full advantage," IBEC said.

The Global Competitiveness Report ranks 80 states according to their competitiveness advantages and their foundations for sustained economic growth.

Competitiveness is measured by the rate of change in gross domestic product (GDP) per person.

The key factors contributing to a ranking are the level of technology in an economy, the quality of public institutions and the macroeconomic environment.

Within these sub-indices, the Republic performs best in the macroeconomic environment table, taking ninth place. Irish public institutions rank 18th, while the level of technology in the economy is 31st in the rankings.

A microeconomic analysis within the report suggests that the Republic's economy has downside rather than upside potential.

The US is the most competitive economy in the world, according to the overall analysis. The top position was last year held by Finland, which this year ranks second.

The US can attribute its ranking mainly to technology-related factors and a business environment that is conducive to entrepreneurship and risk taking, according to the forum.

France is highlighted as one of the least competitive economies in the European Union in the report. Ranked 30th, the only fellow EU states France manages to outperform are Greece and Italy, which are ranked 38th and 39th respectively.

In a general comment, the forum warns on complacency about the global economy.

"The short and medium-term economic risks are considerable, and they exist regardless of the enormous uncertainties associated with the possibility of a protracted war in Iraq or new terrorist threats," the report states.