State must ensure success of economy is not a one-hit wonder

Business 2000: Many analysts believe that one of the main issues facing Ireland today is how to maintain recent economic achievements, writes Claire Shoesmith.

In a week when one of the most important men in the world's economy, Alan Greenspan, retired from his job as head of the US Federal Reserve, it's time we took a look at the Irish economy.

Over the course of the next few weeks, Business 2000 will examine everything about the economy, including its health and wellbeing, its influences and how these factors have affected it in the past. More importantly for you, it will examine what part these factors are likely to play in its future.

If you ask any of your parents or grandparents about the Ireland in which they grew up, they will paint a very different picture from the one you see today. Less than two decades ago it was a country of high unemployment, high tax rates and few jobs.

For decades the economy struggled to grow and many people were forced to emigrate to look for work. Nowadays, thanks to the so-called Celtic Tiger, the situation has changed dramatically.

The Irish economy last year registered its 18th consecutive year of expansion; employment is at record highs, with almost two million people in work; inflation is low; and personal income has risen to match the European average.

"The Ireland you see today is a very different one from that which many of the older generations will have experienced," says Austin Hughes, chief economist at IIB Bank.

"In the early 1990s people were concerned with how to deal with unemployment and emigration and how to increase our incomes. Now things are very different."

Still, that doesn't mean that everything is hunky dory. "There are still challenges," says Jim Power, chief economist at Friends First. "It's just that the challenges themselves are now different."

Most economists agree that one of the main issues facing the Irish economy today is how to deal with its recent successes - how to avoid being a one-hit wonder in the economic charts.

"Setting out a policy to maintain the recent successes is key to the future of the Irish economy," says Pat McArdle, chief economist at Ulster Bank.

He is quick to point out that the keepers of an economy that has come so far in such a short period of time must not become complacent. "Managing inflation and competitiveness are going to be the big issues," he says. However, there is one thing that does need to be dealt with before many other things can change, and that is the mindset of the State.

In the past, Irish people were used to failure and having to leave their country if they wanted any sort of prosperity or wealth. Now the ones that leave do so by choice, not necessity, and they are often turning their backs on excellent opportunities here in Ireland.

"What we need to do is focus on how to make this economic growth a permanent feature of the landscape," says Hughes.

"It means a different way of thinking - how do we manage the infrastructure deficit? How do we address socio-economic issues such as the health service and people's expectations of the role of that service?"

The Irish economy is forecast to grow at a rate of about 5 per cent this year, with consumption and construction driving the performance. Employment is high, with 96,000 jobs being created last year alone, and estimates show it is expected to stay that way for the near future.

So what are the biggest challenges facing the Government on the economy today and how can it ensure it faces up to those challenges and stays on the right path?

According to Power, one of the biggest issues is the pressure on the manufacturing sector. The fact is that many activities can be done much more cheaply in China, India and some parts of eastern Europe than in Ireland.

"There are now a lot of very cheap, highly productive manufacturing nations and that's putting a squeeze on Irish manufacturing," he says, adding that in future he believes this won't only be a trend seen in the manufacturing sector.

As the Irish economy has developed, there have been many positive events, such as the lowering of corporation tax, which has led to an increase in the number of new businesses setting up here. But there have also been negative knock-on effects, such as an increase in the cost of living and therefore the cost of doing business.

Many manufacturers, and particularly indigenous small businesses, are struggling to keep going under the burden of high energy and wage costs, which are putting pressure on their margins.

"Ireland needs to remain as competitive as possible in order to retain this business and it's up to the Government to ensure they control these costs," says Power.

A recent survey by the Chambers of Commerce of Ireland showed that one of the biggest challenges facing small businesses in Ireland was the high level of local authority charges.

Power believes that, while this is currently an issue affecting the manufacturing and small business sectors, it is something that may spread into industries that are currently very healthy, such as financial services.

"If we are not careful we will price ourselves out of the market," he says.

So while the events that changed the Irish economy are now in the past, there are still plenty of challenges ahead. Over the next few weeks we will look at the role of manufacturing in the Irish economy and what can be done to overcome the threats it faces; what joining the European Union has done for Ireland as a State; and also the issue of cheaper labour overseas, in particular whether the expansion of the European Union eastwards poses any threat to Ireland.