Tommy Broughan (Dublin North East, Labour)
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Question 82: To ask the Minister for Finance if he is concerned at the ongoing deterioration of Irish competitiveness as revealed in the harmonised competitiveness indicators; the steps he and others are taking to improve competition; and if he will make a statement on the matter. [21712/11]

Michael Noonan (Limerick City, Fine Gael)
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I note the recent disimprovement in the month-on-month nominal Harmonised Competitiveness Indicators (HCI). This has been evident for just a few months of 2011 and reflects the recent strengthening of the euro exchange rate. It goes without saying that if this trend persisted over a longer period of time it would be a concern.

However, in year-on-year (y-o-y) terms the nominal HCI actually improved in the first four months of 2011. Furthermore, I would direct the Deputy to the real HCI, which deflates the HCI by consumer prices. In this context, it is worth noting that on an EU harmonised basis, Ireland has had the lowest rate of inflation in the euro area over the last two years. Indeed, Irish inflation this year and next year will continue to be lower than in the euro area. This moderate rate of inflation has resulted in a much greater improvement (y-o-y) in the HCI in real terms when compared to the nominal improvement.

The Harmonised Competitiveness Indicator is not the only metric which can be used for gauging competitiveness developments. With regard to cost competitiveness, we are seeing the benefits of our labour market flexibility: according to the European Commission, unit labour costs – wages adjusted for productivity – declined in Ireland by 6% in 2009 and 2010, compared to a 4% increase in the euro area. Looking to the future, a further decline of 3% is expected by 2012 compared to an increase of 2% in the euro area.

While the recent price and wage adjustments together with improvements in productivity are helpful, we must not be complacent as further improvements in our competitiveness are essential to take advantage of the global recovery. To this end, both the Programme for Government and the EU / IMF Programme sets out a series of structural reforms which will help to further restore competitiveness and support economic growth.