Booming economy faces threat from hidden weaknesses

National Competitiveness Council raises concerns about range of issues facing Irish economy

Ireland’s booming economy faces a number of competitiveness challenges that could seriously derail future growth, according to a new report.

The strong performance by a small number of indigenous companies is masking the fact that the majority of Irish companies are underperforming, with productivity growth either stagnant or falling, National Competitiveness Council chairman Peter Clinch said.

He also said the narrow range of exporters, products and services exported, and the reliance on a small number of export markets, poses serious concerns.

In a strongly worded commentary, the National Competitiveness Council (NCC) warned of “several vulnerabilities in the fabric of the economy” which, together with what it describes as a “challenging global environment”, threatens future prosperity.


Potential disruptions

“Despite remaining the fastest-growing EU economy for the fourth year in a row, the sustainability of Ireland’s growth trajectory is under considerable threat. The return, internationally, to protectionist policies, the potential disruptions to the global trading system, the changing international tax landscape and, of course, Brexit, pose risks for Ireland’s economic model,” the council warned.

The NCC said the key challenges facing the Republic currently are improving the resilience of the economy against potential future shocks, maintaining cost-competitiveness, and narrowing the productivity gap between strong domestic companies and under-achieving ones.

While noting obvious external threats, Prof Clinch said there was much to be done on the domestic front to improve competitiveness.

The NCC said a more balanced growth based on increasing contributions from the indigenous sector of the economy is required.

“Broadening the enterprise and export base is key to ensuring that Ireland’s economy is resilient and adaptable,” said Prof Clinch. “Narrowing the productivity gap that exists between the most productive firms and the “followers” is vital for sustainable growth, and critical to addressing the vulnerabilities in Ireland’s economic model.”

The NCC added that enterprise policy needs to strengthen support for SMEs to help them increase their efforts to scale and diversify sustainably and strategically.

It called for more to be done to reduce debt and deficit levels and ensure a broad and balanced tax system, while also ensuring there is no increase in the administrative and financial burden on businesses.

Infrastructural issues

Among the other challenges highlighted by the council in its latest report is the severe shortage of available and affordable housing, which it said is a problem that continues to grow and which risks undermining our economic development.

The council also warned of infrastructural issues, including the failure to roll out the National Broadband Plan, a need to invest more in the educational system to ensure more skilled graduates, and action to meet international carbon emission reduction commitments.

“As the external environment is becoming less favourable, to remain competitive we need to focus on the factors driving sustainable economic growth,” said Prof Clinch.

“Our capacity to adapt quickly in the face of significant challenges has served us well in the past and, in the current global climate of economic and political uncertainty, enhancing the agility of our economic model by improving the factors that drive competitiveness will underpin our economic future and prosperity,” he added.

Charlie Taylor

Charlie Taylor

Charlie Taylor is a former Irish Times business journalist