Vol. 562 No. 1
292 Mr. Durkan asked the Minister for Finance if he has satisfied himself regarding the competitiveness of the economy in comparison with other countries within the Eurozone; and if he will make a statement on the matter. [5681/03]
Maintaining our competitiveness is essential to retaining and expanding the level of investment in Ireland and is, therefore, a priority for the Government. We must remain vigilant to risks to our competitiveness including those posed by inflationary pressure.
For a variety of reasons, Irish inflation has been exceeding the EU norm for some time. Some inflation has been due to external factors, some due to the process of Ireland catching up in growth terms with the rest of Europe and some due to domestic factors. The last is where we must concentrate our efforts. That is why the adoption of the pay arrangements set out under the new social partnership agreement, Sustaining Progress, is important. By ensuring that wage increases are kept to sustainable levels we can continue to focus on our competitiveness and avoid losing jobs.
I welcome the aims of the anti-inflation provisions in Sustaining Progress. The Government, along with IBEC and ICTU, will work together to keep downward pressure on inflation, particularly over the next 18 months. I am pleased to see that the rate of inflation fell to 4.8% in January, despite many predictions that it would rise to around 5.5%. I also note that some commentators see inflation dropping sharply by the end of the year. I will not make a prediction except to say that the trend will be downward during the course of the year.
293 Mr. Durkan asked the Minister for Finance the degree to which Ireland favourably or otherwise compares as an investment location with other countries within the European Union or the applicant countries; and if he will make a statement on the matter. [5682/03]
294 Mr. Durkan asked the Minister for Finance if he has satisfied himself that Ireland continues to be an attractive investment location in view of inflationary and other trends; and if he will make a statement on the matter. [5683/03]
I propose to take Questions Nos. 293 and 294 together.
Foreign direct investment, FDI, has been key to Ireland's emergence as a high-growth economy over the past decade. The level of FDI investment in Ireland, relative to the size of our economy, is one of the highest in Europe and the world. Ireland has for a long time received a far higher proportion of FDI inflows into the EU than our 1% of the population would suggest. In 2000, for instance, we received 10% of all FDI inflows into the EU.
Maintaining our competitiveness is essential to retaining and expanding on the level of FDI into Ireland. The latest inflation projection published by my Department was included with the budget documentation. It was then estimated that inflation, as measured by annual changes in the consumer price index, would be 4.8% in 2003. This forecast, as always, was based on the technical assumption of unchanged interest rates. Since budget day, the ECB cut interest rates, and this will have a favourable impact on the CPI this year. On the assumption of unchanged interest and exchange rates and that pay developments are consistent with the assumptions which were used in Budget 2003, my Department projected an easing in inflation beyond 2003 to around 2.5% by 2005, much closer to the projected EU average.
