Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

Available data for the year to date to the end of quarter 2 show GDP has fallen by 1.1%, while employment has grown by 1.5% in the same period. This implies negative productivity growth relative to the same period last year. While quarterly data in Ireland are volatile, my Department is nonetheless projecting a fall in labour productivity this year. This is a somewhat unusual development. One of the main factors behind it is the composition of output this year. Output and exports are falling in the pharmaceutical sector, reflecting the impact of the patent expiry for a number of important products. The pharma-chem sector accounts for about one quarter of exports and about 12% of gross value added. In other words, the sector is very large relative to Ireland’s overall GDP. In contrast to its high share of output, the labour share of this sector is small, accounting for just 2% of overall employment in Ireland. As a result, employment at an aggregate level has been largely unaffected by the decline in activity in this sector.

For 2013 as a whole, my Department expects GDP to be supported by a positive contribution from domestic demand which, as it tends to be more labour intensive in nature, will assist continued employment growth. Next year and over the forecast horizon, my Department does not expect the divergence in growth of GDP and employment to continue, as expansion is forecast in both the domestic and externally driven components of the economy.

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