Bernard Durkan (Kildare North, Fine Gael)
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Question 155: To ask the Minister for Finance the extent to which he has identified inflationary tendencies in the economy which have caused the transfer of jobs to more cost effective locations overseas; and if he will make a statement on the matter. [19288/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Irish economy's competitive position deteriorated since the early part of this decade. Reasons for our decline in competitiveness include an appreciation of the euro as well as wage costs increasing at a rate faster than productivity improvements. In addition, inflation in Ireland was above the euro area average from 1999 to 2007. As a result, consumer price levels in Ireland are now about a quarter greater than the euro area. All of these factors increased the relative cost of doing business here.

In terms of prospects, we expect the Harmonised Index of Consumer Prices in Ireland to fall by about 11⁄2 per cent this year, a larger fall than the euro area average. A short period of price falls which will assist price convergence towards euro area levels is welcome. Nevertheless, the factors causing this decline are temporary and we expect inflation to return to low, but positive territory next year in Ireland. It would also appear that labour costs have also begun to fall. While up-to-date official statistics are not yet available, there are indicators of pay cuts here in Ireland. In addition, the public service pension-related deduction recently instituted in the light of the pressures on the public finances should have a positive demonstration effect in the private sector which will have a beneficial knock-on effect for competitiveness.

Ireland continues to perform very well in terms of attracting investment from abroad. Despite global economic difficulties, 2008 was a very good year for inward investment with a total of 130 FDI projects won, 8,800 new jobs created and a projected investment of circa €420m in IDA-supported companies. There was an increase of 16% in the number of new companies setting up in Ireland for the first time, as well as a 22% increase in research, development and innovation projects, which totalled 56 projects. It is important to recognise that even in turbulent economic times there is still FDI to be won.