Conor Lenihan
Ceist:195 Mr. C. Lenihan asked the Minister for Finance his views on the domestic economic impact of falling oil prices and the continued climb in the value of the euro. [13364/03]
Written Answers. - Oil Prices.
In the event of a sustained, significant decrease in the price of oil, disposable spending power would tend to increase and strengthen economic growth in our major trading partners. This would be likely to increase our exports to those countries and could also reduce inflation here. However, while oil prices have decreased from $34 in March, the highest price since 2000, it remains to be seen how permanent this decline is.
As a small, open economy, Irelands ability to trade to a large extent determines our living standards. Therefore, it is vital that Ireland remain competitive primarily in relation to our main trading partners, but also in a global context. Relatively high wage and price inflation pose a risk to the competitiveness of our economy. This is particularly the case in the context of the euro recent appreciation against both the dollar and sterling.
The euro is currently trading higher against the US dollar and sterling than at the same time last year. The appreciation of the euro affects the economy in a number of different ways. On the positive side, it lowers inflation by reducing input prices and reduces oil prices, as oil is invoiced in US dollars. However, it also reduces the competitiveness of Irish firms exporting to the UK and US and of firms competing with US and UK firms in third country markets. In addition, by diminishing the competitiveness of the euro area, it lessens demand for Irish goods and services in the euro area. That is why competitiveness is a priority for this Government.