Dáil Éireann Debate, Thursday - 28 April 2022
172. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which Ireland’s economy continues to compete with other European economies inside and outside the eurozone; and if he will make a statement on the matter. [21578/22]
View answer178. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which Irish manufacturing and services costs remain competitive within the European Union; and if he will make a statement on the matter. [21585/22]
View answerI propose to take Questions Nos. 172 and 178 together.
At the beginning of this year, the fading impact from the pandemic alongside the strong recovery in the labour market pointed to robust growth in Irish economy this year. However the onset of the war in Ukraine fundamentally altered the economic outlook, representing a large supply-side shock to the global economy. While the war is expected to slow the economic recovery, it is importantly not expected to de-rail it.
The primary channel through which the conflict will impact on the Irish economy is via elevated energy and other commodity prices. Higher prices will undermine the profitability of business, with costs rising in both the Irish manufacturing and services sectors. However, higher inflation is not only affecting the competitiveness of businesses in Ireland, but is also impacting on the competitiveness of businesses in most advanced economies, with the euro area, the US, and the UK all recording multi-decade high inflation in March.
In the Stability Programme Update, published earlier this month, my Department projected inflation to peak at an average rate of 6¾ per cent in the second quarter, before easing slightly over the rest of the year. Inflation is expected to moderate next year but remain at an elevated level, although risks to inflation are tilted firmly to the upside.
As it stands, Ireland remains in a competitive position. The Irish modified current account, which strips out the distorting effects of globalisation, is in a very strong position and is expected to remain in surplus over the medium term. Irish exports have recorded a robust start to 2022, with a continued strong performance in the multinational sector and significant growth in the traditional sector. I am very aware of the importance of maintaining our competitive position on the international stage
Domestically, there is a real risk that a wage-price spiral emerges as a result of persistently-high inflation. This would damage cost competitiveness and hamper the economy’s ability to compete in the global market place. My Department will continue to monitor risks to Ireland’s competitiveness closely, and respond as needed to protect Ireland’s competitive advantage.
