Ireland: Inflation threatens to ‘crush’ economy

GOVERNMENT failure to contain inflation could further erode Ireland’s competitiveness, the Central Bank warned yesterday. The inevitable result would be job losses, as exports fall and multinationals opt to locate in countries where it is cheaper to do business.

Irish inflation levels are the highest in the euro zone, and pose “an increasing risk to the Irish economy’s export competitiveness”, the bank said in its first quarterly bulletin of the year. “Any further inflation over and above that of our trading partners would place further pressure on the economy’s competitiveness,” the bank said.

An additional problem is that Irish productivity levels have “deteriorated significantly” in recent years, and the two issues combined have placed particular pressure on those companies exporting goods. While stressing that the overall outlook “remained generally good”, with economic growth expected to stay strong, the bank said the pattern of that growth had become “somewhat unbalanced” in recent years.

Strong domestic growth — fuelled by consumer spending and the property boom — was in contrast to the “weaker export performance”. The bank said it was now important that “domestic polices focus on containing inflation” — a clear appeal to the Government to act. It said there were a number of ways economic policy could “limit domestic inflationary pressures”.

These included:
- Ensuring more competition in sectors where it remains limited.
- Ensuring that future pay developments — such as the social partnership agreements — are sensible and “protect competitiveness”.
- Boosting productivity growth through longer-term policies such as improving infrastructure, increasing research and development, and funding education.

Fine Gael deputy leader Richard Bruton said the bulletin highlighted the Government’s failings on the competitiveness front.

“It is clear that this Government has contributed to a loss in Irish competitiveness — through its fiscal policy, through its pricing decisions, and through its failure to promote vigorous competition in sheltered sectors,” he said.

“Ireland is not invincible and cannot substitute a booming property sector for the weakening export performance. The Fianna Fáil/PD Government has fuelled this imbalance instead of seeking to fortify our crucial exporting sector.”

Finance Minister Brian Cowen, speaking in Brussels, played down the bulletin and defended the economy’s performance.

Referring to Motorola’s announcement of 350 redundancies in Cork, Mr Cowen said: “I regret the job losses but it must be seen in the context of 3.7% unemployment in Cork and the creation of 80,000 new jobs last year.”

Source: irishexaminer.com