Protecting the recovery


Record low interest rates, a weak euro and low oil prices have hugely contributed to Ireland’s export-led economic recovery. All these developments are uniquely favourable, and provide a major stimulus to the economy. But they also remain factors outside national control. And, in time, as these policy positions are reversed, their positive impact on the Irish economy will diminish: the euro will strengthen, interest rates will rise, the oil price will recover and domestic costs will increase. How soon will all these things happen? No one can yet say.

A major concern of the National Competitiveness Council (NCC) in its latest report is to ensure the Government and the public are well prepared for that inevitable adjustment. The immediate challenge is to sustain the strong recovery underway by remaining competitive - by keeping costs under control. But that, the NCC fears, is a challenge we are not adequately meeting. The council warns that costs in a range of business sectors are above the euro zone average. Clearly, as growth gathers pace, we risk repeating past mistakes made before the economic crash. Then rapidly rising domestic costs eroded the benefits of strong growth, and national competitiveness declined rapidly.

Since the economic downturn, Ireland has moved up the global competitiveness table, partly thanks to terms in the bailout programme requiring tight control on labour and other costs. But with less external surveillance of national economic performance, a buoyant economy and a general election now on the political horizon, the Government may be tempted to minimise the risks to cost competitiveness. It would be wrong to do so. The NCC has now warned that a "significant risk" exists that strong growth will erode the gains made in improved competitiveness. One Government Minister, Richard Bruton, has heeded that warning, and asked his Cabinet colleagues to account for their efforts to control costs. As the Government prepares to face demands for a reversal of public service pay cuts, its collective concern for cost competitiveness will be well tested.