Dáil Éireann Debate, Thursday - 23 November 2023
204. Deputy Bernard J. Durkan asked the Minister for Enterprise, Trade and Employment the extent to which he has identified any potential threats to the manufacturing and services sectors here likely to arise from continued inflation or competition; and if he will make a statement on the matter. [51748/23]
View answerMany of the risks from inflation have been identified, or indeed have been realised, in particular those associated with energy costs. While the rate of inflation in these areas has declined in the past year, that is not to say that there is still not an ongoing significant cost to the Irish economy – as the level of energy prices remains higher than previously.
Ultimately, the risk of ongoing excessive inflation will be its impact on price stability, which in turn can impact macroeconomic stability. The reduction in the rate of inflation is welcome in this context. Although still elevated at 5.1 per cent in October, it is generally declining and is down from 9.4 per cent in October 2022.
Cost inflation can have significant impacts on Ireland’s ability to compete internationally. However, Ireland has shown its strong ability to compete internationally, evident in our ranking of 2nd in the IMD World Competitiveness Rankings this year from a total of 64 countries. This ability to compete is also evident in the continued resilience of the Irish economy at a challenging time for the global economy.
My Department continues to monitor risks to economic activity and employment to the manufacturing and services sectors of the economy. With an unemployment rate of 4.8% in September, the Irish economy has been operating at a level close to full employment for quite some time. The risks to employment in these sectors will depend on the risks to the economy, more broadly. Added to this, Irish GDP grew by 13.6% in 2021, and 9.4% in 2022, therefore, a moderation in economic growth might naturally be expected. A moderation in growth is also forecast in the Economic and Fiscal Outlook published as part of Budget 2024 which projects Real GDP growth of 4.5% for both 2024 and 2025.
Continued inflation will also mean that interest rates may also remain elevated for an extended period. With the ECB not expected to cut rates before Summer 2024, this may in turn dampen international economic growth rates. Given the open nature of the Irish economy, a slowdown in international growth may lead to more moderate rates of growth domestically. Cyclicality in demand can also have implications for sectoral economic growth - such as demand for pharmaceutical products which had seen significant growth during the COVID-19 pandemic and bolstered Irish exports during that period. As an open economy we are also aware of the risk which any rise in protectionism internationally presents.
Over the two-year period prior to Budget 2024 a total of €12 billion – 4½ per cent of national income – was provided in cost of living and doing business supports, comprising a mix of permanent and one-off measures, to absorb some of the impact and ease the burden of inflation on households and businesses. Budget 2024 contained a number of measures which will support businesses facing increased costs of doing business, including the Increased Cost of Business Grant will be targeted at Small and Medium sized businesses who operate from a rateable premises, with a total allocation of €250m and an extension of the 9% VAT reduction for gas and electricity until 31st October 2024, among other measures.
As set out, my Department continues to monitor sectoral economic activity and risks to this activity. However, no new measures are currently under consideration beyond what has already been announced. As with the supports which were provided to help businesses with rising inflation, there is a limit to how much direct support Government can offer firms to shelter them from international economic developments and associated risks.
The Government’s approach to enterprise policy continues to be guided by the priorities set out in the White Paper on Enterprise 2022-2030 – published in December last year. This review of Enterprise Policy was the first since 2018 and was motivated by an awareness of a changing enterprise landscape posing new challenges, including shifting patterns of globalisation driven by geopolitical change, disruptive technological innovation, and lagging productivity in parts of the indigenous sector of the economy.
