The business lobby group Ibec said today there is evidence the Irish economy is beginning to pull out of recession.
However, it warned Ireland’s ‘hard-won credibility’ in the eyes of international markets must be sustained to contain the cost of Government borrowing.
Ibec revealed it is more optimistic about the country’s recovery after December’s budget and revised its economic forecasts upwards.
But Government officials and union leaders will enter talks today over public sector pay cuts after workers threatened widespread strike action.
General director Danny McCoy said the tough action to stabilise the public finances resulted in some restoration of confidence in Ireland on international financial markets.
“Confidence, however, is a fragile commodity and any undermining of the national effort will increase the cost of servicing the national debt,” he said.
Ibec, the group that represents Irish business, forecast the economy will shrink 0.7 per cent in 2010 - in contrast to its earlier prediction of 1.6 per cent.
Mr McCoy said trade unions should be aware that threats of industrial action gain international notice and could rapidly undo the credibility that has been established.
“So far Ireland has demonstrated the flexibility of its labour market,” he said. “In both the public and private sectors there have been wage reductions, pay freezes and changes in work practices. This was necessary.”
Mr McCoy said wages increased much more rapidly in Ireland than other countries in the euro area in the period from 2002-2008, precipitating a serious decline in competitiveness.
“As a result, unit labour costs increased by 31 per cent in the period, compared with an increase of 9 per cent in the euro area,” he added. “In a single currency, there is no currency depreciation option to restore lost competitiveness.
“This can only be achieved by unit cost reductions, brought about by a combination of pay reductions and productivity gains.”