James Reilly (Dublin North, Fine Gael)
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Question 90: To ask the Minister for Enterprise, Trade and Innovation if he will provide an index showing Ireland's change in competitiveness with the United Kingdom, the United States of America , the eurozone and the rest of the world each year from 1995 to 2009; the way the change in competitiveness is affected by exchange rate movements and by changes in the general price levels; and if he will make a statement on the matter. [18900/10]

Batt O'Keeffe (Cork North West, Fianna Fail)
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Measuring competitiveness is complex and requires an assessment of the full range of factors which enable firms to improve their productivity levels and compete in international markets. There are a number of international indices of competitiveness produced by international bodies, each with their own methodological constraints. The National Competitiveness Council's annual report, "Benchmarking Ireland's Performance", provides a comprehensive assessment of Ireland's competitiveness.

Taking a narrow view of competitiveness in terms of real effective exchange rates or price and labour costs is only one part of such an assessment. In this context the Central Bank in collaboration with the European Central Bank have developed a whole economy relative cost index, the Harmonised Competitiveness Indicators (HCIs), which provide an indication of trends in competitiveness. The nominal HCI is a nominal effective exchange rate for the Irish economy that reflects, on a trade-weighted basis, movements in the exchange rates vis-À-vis 56 trading partners. The real HCI (deflated by consumer prices) takes into account relative price changes along with exchange rate movements. The table below presents the data for the period 1995-2010, indexed to January 1995.

For comparisons with the Euro area and other countries, the data is presented for the period 1999-2009, (with 2000 being the base year for comparisons). The data below covers Ireland vis-a-vis the UK, the Euro area, the US and Japan, which covers close to 90 per cent of our trading partners.

Source: Central Bank

Both exchange rate movements and changes in general price levels impact directly on our relative cost competitiveness. As the euro appreciates or depreciates vis-À-vis the currencies of our non-eurozone trading partners, so too does our competitiveness improve or disimprove. With the depreciation of both UK Sterling and the US Dollar, Eurozone goods and services, including Ireland's, become more expensive relative to goods and services produced in those countries for sale in both domestic and foreign markets. The more recent appreciation of the dollar and strengthening of sterling vis-À-vis the euro have helped to improve our competitiveness. There is little that the Government can do directly in relation to influence exchange rates, although increased exports to the Eurozone can reduce exposure to currency fluctuations and increase certainty for internationally trading enterprises.

In terms of changes in general price levels, a fall in domestic prices relative to prices in other countries will impact the price competitiveness of domestic firms. In this context, since January 2008, Ireland has regained competitiveness as domestic inflation has remained below that of our main trading partners.

In terms of domestic inflation, the Consumer Price Index (CPI) fell by 3.1 per cent in the twelve months to March 2010. The Irish HICP - the harmonised European measure of consumer prices - fell by 2.4 per cent in the year to February 2010, the largest decline in the euro area, compared with an overall EU increase of 1.4% and an increase of 3.0% in the UK. This narrowing in the differential in prices is very much to be welcomed and clearly will help the competitiveness of Irish businesses. A further reduction in prices is forecast for the remainder of this year compared with low growth across the EU on average, meaning our cost competitiveness position in relation to our trading partners is continuing to improve.

Taking account of both the recent falls in relative prices and more favourable exchange rate movements vis-À-vis key trading partners, Ireland's real harmonised competitiveness (HCI) in February 2010 was 2.26% below the January 2005 level.

Further strengthening Ireland's competitive position will foster economic growth. I am working with my colleagues in Government to further embed the improvements already achieved and to strengthen Ireland's relative international competitiveness position.