The economy came through the international downturn of 2001-2003 in remarkably resilient fashion and growth has picked up over the past year.
Most forecasters expect growth to run at around 5 per cent this year and next, as we benefit from a generally favourable international picture. Against this background it is perhaps difficult for the National Competitiveness Council to be warning that dangers lie ahead. However the generally favourable economic backdrop does not mean that their latest annual report, published yesterday, can be ignored. On the contrary it contains timely policy advice on a range of areas and identifies measures which will help to sustain economic growth over the medium term.
A central point of the report is that cost competitiveness here is now out of line. This is not a new conclusion and it could be argued that growth here has continued over the past couple of years despite relatively high price levels. However, the danger is that the high cost environment gradually undermines growth prospects in the years ahead, affecting inward investment and accelerating job losses in vulnerable sectors.
The latest inflation figures show that the annual rate edged down to 2.5 per cent last month. However, this is no cause for complacency. Inflation here remains above the EU norm of 2.1 per cent. Thus the Government should carefully note the council's advice not to unduly increase indirect taxes in the Budget in December. Such increases are an easy way to raise finance for the Exchequer, but they carry a cost in terms of pushing up inflation and, in the long term, leading to demands for higher wages.
There is also merit in the suggestion that future national wage agreements should make wage growth more sensitive to developments in our international competitiveness. This is a difficult goal to achieve, though the NCC is correct in stating that more could be done to encourage profit and gain-sharing schemes in business. In the long term the Government must also actively address public sector efficiency; enough account was not taken of this in the first round of pay benchmarking for the public service and the same mistake must not be made if there is to be a new benchmarking round.
The report treads on familiar - albeit still valid - ground when it looks at the need for continued investment in research and science. A call for new pre-primary education measures merits examination. Above all, a clear focus is what is needed from Government on the competitive agenda. This is a job for the new Minister for Enterprise, Trade and Employment, Mr Martin, who must not see his new position as merely an opportunity to deliver good news in the form of job announcements.