Bernard Durkan (Kildare North, Fine Gael)
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104. To ask the Minister for Finance the extent to which he continues to make progress in meeting the various economic indicators with particular reference to the need for a competitive economy; and if he will make a statement on the matter. [25835/19]

Paschal Donohoe (Dublin Central, Fine Gael)
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Overall our economy is in good shape and is expected to grow this year and next. Modified domestic demand, an underlying measure of growth in the economy, grew by 4.5 per cent for 2018 as a whole.

One of the best barometers of the heath in the economy is the labour market. The strong growth in employment over the last number of years has continued into this year, with total employment increasing by 81,200 (+3.7 per cent) in the year to Q1 2019. As a result, there are now more people working in Ireland than ever before.

At the cornerstone of our recovery, has been the improvement in our competitiveness. Since 2008, the Central Bank’s real harmonised competitiveness indicator has improved by approximately 22 per cent. The improvement in our competitiveness reflects the hard-won productivity gains made over the last number of years, alongside wage and price moderation.

Importantly, the robust economic growth in recent years has not yet given rise to significant inflationary pressures. In the first four months of 2019, average annual inflation was just 1.1 per cent was recorded.

On wage developments, while average annual earnings grew by over 3 per cent in 2018, this came on the back of a near decade of low or negative growth in earnings. The rise in labour income is a welcome development, however it needs to be monitored closely, as a significant acceleration in wages could undermine Ireland’s relative competitiveness to other European countries.

Over the medium term, the domestic economy is expected to act as the primary driver of growth. In this context, we must remain conscious of the potential upward pressure this will place on both prices and wages, that could give rise to a loss of competitiveness.

Bernard Durkan (Kildare North, Fine Gael)
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105. To ask the Minister for Finance if he has identified specific factors which might impede economic progress or reduce the competitiveness of the economy having particular regard to the extent to which the relative positions compare in each jurisdiction in the European Union; and if he will make a statement on the matter. [25836/19]

Paschal Donohoe (Dublin Central, Fine Gael)
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Overall our economy is in good shape, modified domestic demand, an underlying measure of growth in the economy, increased by 4.5 per cent for 2018 as a whole. Although growth in our economy is expected to moderate over the coming years, it is still expected to compare very favourably to other EU countries. The 2019 IMD World Competitiveness Yearbook recently ranked Ireland as the 2nd most competitive country in the EU and the 7th most competitive country in the world, both of which are relative improvements on the 2017 rankings.

As a barometer of how well our economy is performing, there is no story more positive than the one emanating from our labour market. The positive growth in employment seen over the last number of years has continued into 2019, as a result the unemployment rate has fallen from a peak of 16 per cent in early 2012 to 4.4 per cent in May 2019. This compares favourably to an average unemployment rate of 6.4 per cent for the EU as a whole.

Importantly, the robust economic growth in recent years has not yet given rise to significant inflationary pressures. For 2018 as a whole, average annual inflation of just 0.7 per cent was recorded, this compares favourably to the 1.7 per cent recorded across the EU.

Over the medium term, the domestic economy is expected to act as the primary driver of growth. The baseline projections assume that some moderate overheating pressures will emerge, particularly in the context of the expected increase in housing output. However these pressures could be more significant than expected with the potential to generate imbalances over the coming years and impact on our competitiveness.

As I outlined in the Stability Programme Update in April, our economy also faces a number of external risks which could undermine our competitiveness. These risks primarily relate to a more adverse-than-expected outcome from Brexit, a rise in protectionism and a disruption to world trade. There is also increasing evidence of a slowdown in global growth.

As many of the risks we are facing are external and thus beyond our control, the best way we can mitigate against them is through prudent budgetary policy, careful management of the public finances and by focusing on competitiveness-oriented policies, particularly those that increase productivity.