Written answers

Thursday, 7 May 2015

Department of Finance

Economic Competitiveness

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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61. To ask the Minister for Finance the extent to which this economy remains competitive, as compared with other eurozone and non-Eurozone European Union member states; and if he will make a statement on the matter. [18037/15]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Substantial progress has been made in improving Ireland's competitiveness in recent years. 

There has been a significant improvement in Ireland's economy-wide cost competitiveness. From the European Commission's most recent spring forecasts, it can be estimated that nominal unit labour costs in Ireland fell by nearly 8 percent between 2008 and 2014. This compares with an increase of 12 per cent in the UK and 8 per cent in the euro area over the same time period.

In addition, relatively low consumer price inflation over the last number of years has contributed to the improvement in Ireland's competitiveness because Irish price levels have fallen considerably relative to those of our euro area peers. For instance, annual HICP inflation in Ireland has been below that of the euro area average for every year since 2009.

The European Central Bank's Expanded Asset Purchase Programme (EAPP) which began on 9 March, has been associated with a depreciation of the euro in recent months. With the US and the UK being Ireland's biggest trading partners outside the euro area, a depreciation of the euro against the dollar and sterling have a particularly positive impact on Ireland's competitiveness and therefore the export potential of firms in Ireland. The real Harmonised Competitiveness Indicator (HCI) measures the trade weighted exchange rate for Ireland, adjusted for relative price developments in trading partners. Between April 2008 and March 2015 Ireland's real HCI fell by over 23 per cent, indicating a significant improvement in competitiveness over the period.

The gains in Irish competitiveness achieved since 2008 have been hard-won through productivity improvements, wage and price moderation. It is important that this competitiveness is preserved and continues to support growth. In this regard we must be cognisant that favourable exchange rate movements and gains from the fall in oil prices may unwind in the future.  Therefore we need to stay focused on continuing to improve Ireland's competitiveness through other channels such as wage and productivity improvements.

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