Ireland’s competitiveness risks being eroded if spiralling wage growth returns - Ibec
Ireland’s competitiveness risks being eroded if spiralling wage growth returns to the economy, business lobby group Ibec has warned.
It said that the country’s economic growth in future years could slow as a result, leaving Ireland “exposed” if international trade turmoil persists or there’s a future global downturn.
Ibec’s head of tax and fiscal policy, Gerard Brady, said that the current picture of Ireland’s economy is “broadly a positive one”, with rising consumer spending and higher incomes.
“We have been here before however,” he has warned in Ibec’s latest quarterly economic outlook published this morning.
“Previous periods of rising living standards gave way to rising costs for businesses and households, a lack of focus on productivity and an eventual erosion of the basis for sustainable growth,” he said.
He cautioned that higher domestic costs, rising interest rates and oil prices, coupled with weaker sterling, is now putting “significant pressure” on businesses here, and particularly on those firms already exposed to the threat of Brexit.
“If we cannot avoid a renewal of our boom-time wage-cost spiral, we will crowd out our exporters and see inflation erode the benefits of wage growth,” he claimed.
He added: “We cannot use a tight labour market, rising oil prices and future interest rate hikes as excuses for inaction on the things we can control - like investing wisely in skilled workers and controlling other areas of our cost base.”
Last week, the European Commission forecast that Ireland’s economy will grow 7.8pc this year. It predicted that it will expand by 4.5pc next year, marking the second-highest rate in the EU after Malta.
"The positive performance of the labour market and construction investment are expected to support the domestic economy in the near term," according to the Commission.
But Ibec said that while Ireland’s active workforce is now at its highest ever level, employment growth has been concentrated in lower productivity sectors.
It pointed out that the fastest employment growth has been seen in sectors including construction, accommodation and food, education, and administration and support. Ibec said that these sectors account for 73p of the total increase in annual employment.
However, it said that growth in high-end employment, in professional and scientific services, finance, and technology has been more modest. About 4,000 manufacturing jobs have also been lost in the past year.
“There is a similarity here with previous periods of growth in domestic demand,” said Ibec. “Labour intensive sectors expanded to meet demand which then bid up wages. Left untended, without offsetting productivity increases, this has the potential to slow the growth of the economy in the medium-term.”
The lobby group also said that boosting the number of available workers in Ireland would be difficult and require policy changes such as the introduction of affordable childcare.