Bernard Durkan (Kildare North, Fine Gael)
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153. To ask the Minister for Finance the extent to which he remains satisfied that Ireland remains a competitive economy and attractive to indigenous investors and foreign direct investors; and if he will make a statement on the matter. [31115/18]

Bernard Durkan (Kildare North, Fine Gael)
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157. To ask the Minister for Finance the extent to which he expects to be in a position to counter negative economic impacts arising from Brexit; and if he will make a statement on the matter. [31119/18]

Bernard Durkan (Kildare North, Fine Gael)
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159. To ask the Minister for Finance the extent to which he remains satisfied that all economic indicators remain stable and consistent with requirements for the future notwithstanding changes in the international political situation; and if he will make a statement on the matter. [31121/18]

Bernard Durkan (Kildare North, Fine Gael)
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162. To ask the Minister for Finance the extent to which he expects the economy to maintain positive performance over the next five years; if he anticipates corrective measures arising from external factors; and if he will make a statement on the matter. [31124/18]

Paschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 153, 157, 159 and 162 together.

Recent economic indicators have generally been positive, indicating that the recovery is continuing in a sustainable manner.

Preliminary real GDP growth of 7.8 per cent was recorded for 2017, but this is heavily distorted by activity in the multinational sector. Modified domestic demand, which adjusts for distortions in the data, is up 4.0 per cent in 2017.

The strength of domestic demand is evident in the labour market. Employment growth remains strong with an annual rate of 2.9 per cent recorded in 2017, representing over 61,000 additional jobs. The momentum in the labour market has continued into 2018 with data for the first quarter again showing employment growth of 2.9 per cent. As a result, employment levels now exceed the pre-crisis peak.

Other recent data confirm that momentum in the economy has continued into 2018:

- Core retail sales, i.e., excluding car sales, are up 4.5 per cent in the first 5 months of the year compared to the same period in 2017.

- Export growth has been very strong with the volume of exports increasing by 18.7 per cent on an annual basis in the first four months of the year.

- The monthly unemployment rate for June was 5.1 per cent, down from its peak of 16 per cent in early-2012.

As part of the 2018 Stability Programme Update, my Department forecast real GDP growth of 5.6 per cent this year and 4 per cent next year. Over the medium-term, GDP is projected to grow by around 3 per cent per annum with positive contributions from both domestic demand and net exports.

These projections assumed that a transition period will be agreed that extends or replicates existing frameworks until end-2020 i.e. the UK is assumed to remain in the single market and customs union during this period. From 2021 onwards, the baseline forecasts assume that the EU and UK conclude a free trade agreement; there is, of course, considerable uncertainty in relation to the post-exit nature of trading arrangement between the EU and the UK.

While the economic situation is relatively healthy at present, there are a number of significant risks facing the Irish economy. First and foremost is the potential fallout from a more adverse-than-excepted outcome of the Brexit discussions currently under way. Secondly, given the importance of the traded sector in the Irish economy, any disruption to world trade and in particular a tit-for-tat trade war would have a disproportionate impact on Irish growth prospects. In addition, a faster-than-expected normalisation of monetary policy, rising geopolitical uncertainty and changes in other jurisdictions that affect the competitiveness of Ireland’s corporate tax regime all have the potential to derail the recovery.

While US tax reform has the potential to adversely impact Ireland, our access to the European market is, and will remain, a key factor in attracting FDI from the US and elsewhere. Global business, from the US or elsewhere, will always want to have operations in the EU, and Ireland will remain attractive as an EU location to invest in and do business from.

There are also domestic challenges such as housing supply and overheating pressures and the related challenge of maintaining competitiveness.

Significant progress has been made in recent years in improving Ireland's competitiveness. The latest figures from the Central Bank of Ireland show that Ireland's real harmonised competitiveness indicator, a widely used measure of competitiveness in Europe, has improved by approximately 19 per cent between its peak in 2008 and February 2018.

The restoration of Irish competitiveness since 2008 has been hard-won through productivity improvements and wage and price moderation. It is important that this competitiveness is preserved and continues to facilitate growth. In this regard, the most recent National Competitiveness Council bulletin, which highlights our decline in the 2018 IMD Competitiveness rankings, though remaining the 3rd most competitive economy in the euro area, serves as a reminder that we cannot afford to be complacent. This is all the more important given the significant economic risks we face including Brexit which has already negatively impacted on our competitiveness through sterling depreciation.

As the depreciation in sterling most likely reflects a structural change in the UK economy, it is essential that the policy response is also structural in nature and in line with EU State Aid rules. Continued market diversification must be part of the policy response, so that dependence on and exposure to the UK market is reduced. As part of the Government’s trade strategy, Ireland Connected, a number of measures have been set out to specifically address Brexit related issues, including diversification of markets for indigenous exporters. Greater market diversification must be part of the policy response, so that dependence and exposure to the UK market is reduced.

In summary, I am satisfied that the economy is in good shape at the moment. However, there are a number of risks. The best way to mitigate such risks is to improve the resilience of the economy. The Government will play its part by continuing to implement competitiveness-oriented policies – including those that address emerging bottlenecks – and ensuring that the public finances continue to be managed in a prudent fashion.