National Competitiveness

Tuesday, 1 June 2010

Ceisteanna (82, 83, 84, 85)

James Reilly

Ceist:

99 Deputy James Reilly asked the Minister for Enterprise, Trade and Innovation the amount by which labour costs must fall in order for competitiveness here to be restored to its level on 1 January 1999, assuming exchange rates and prices do not change; and if he will make a statement on the matter. [22892/10]

Amharc ar fhreagra

James Reilly

Ceist:

100 Deputy James Reilly asked the Minister for Enterprise, Trade and Innovation the amount by which consumer prices must fall in order for competitiveness here to be restored to its level on 1 January 1999, assuming exchange rates, producer prices and labour costs do not change; and if he will make a statement on the matter. [22893/10]

Amharc ar fhreagra

James Reilly

Ceist:

101 Deputy James Reilly asked the Minister for Enterprise, Trade and Innovation the amount by which producer prices must fall in order for competitiveness here to be restored to its level on 1 January 1999, assuming exchange rates, consumer prices and labour costs do not change; and if he will make a statement on the matter. [22894/10]

Amharc ar fhreagra

James Reilly

Ceist:

102 Deputy James Reilly asked the Minister for Enterprise, Trade and Innovation the amount by which the exchange rate with sterling and the US dollar must fall in order for competitiveness here to be restored to its level on 1 January 1999, assuming producer prices, consumer prices and labour costs do not change; and if he will make a statement on the matter. [22895/10]

Amharc ar fhreagra

Freagraí scríofa

Minister for Enterprise, Trade and Innovation (Deputy Batt O’Keeffe)

I propose to take Questions Nos. 99 to 102 together.

Measuring competitiveness is complex and requires an assessment of the full range of factors which enable firms to improve their productivity levels and compete in international markets. There are a number of international indices of competitiveness produced by international bodies, each with their own methodological constraints. The National Competitiveness Council's annual report, "Benchmarking Ireland's Performance", provides a comprehensive assessment of Ireland's competitiveness.

Taking a narrow view of competitiveness in terms of real effective exchange rates or price and labour costs is only one part of such an assessment. Table 1 shows labour cost (i.e. average industrial wage) developments since 1999.

Table 1: Labour costs 1999-2009

CSO, Earnings data	Average Industrial Wage
	Hourly	Weekly
Q1 1999 in Irish Punts	7.61	305.95
Q1 1999 converted to €	€9.66	€388.46
Q3 2009	€21.30	€778.47
Q3 2009 in January 1999 constant prices	€15.49	€566.28
Nominal Difference between 1999 and 2009	€11.64	€390.01
Percentage change required in nominal terms	54.64%	50.10%
Difference between 1999 and 2009 using constant prices	€5.83	€177.81
Percentage change required in real terms	37.64%	31.40%

Table 1 shows that labour costs, as measured by the average industrial wage, would have to fall by 31.4% in real terms to be restored to levels seen in Q1 1999.

The Central Bank in collaboration with the European Central Bank have developed a whole economy relative cost index, the Harmonised Competitiveness Indicators (HCIs), which provide an indication of trends in competitiveness. The nominal HCI is a nominal effective exchange rate for the Irish economy that reflects, on a trade-weighted basis, movements in the exchange rates vis-à-vis 56 trading partners. The real HCI (deflated by consumer prices) takes into account relative price changes along with exchange rate movements. The HCI has been deflated by consumer and producer prices to show the level both would need to fall to reach 1999 levels.

Table 2: HCI, Consumer Price and Producer Prices 1999-2010

Harmonised Competitiveness Indicators for Ireland (HCIs)
		Nominal HCI (Monthly average)	Real HCI (Deflated by consumer prices)	Real HCI (Deflated by producer prices)
1999	January	100.00	100.00	100.00
	February	98.53	98.73	98.55
	March	97.21	97.33	97.21
	April	96.27	96.38	96.98
	May	95.83	96.36	96.67
	June	94.55	95.16	95.74
	July	94.65	95.19	95.74
	August	95.39	96.24	96.37
	September	94.36	95.36	95.33
	October	95.01	96.07	95.61
	November	93.31	94.63	94.35
	December	91.99	93.90	94.79
2000	January	91.90	94.11	95.08
	February	90.98	93.39	93.98
	March	89.98	92.51	93.07
	April	88.91	91.76	92.69
	May	87.81	91.08	92.20
	June	90.23	93.59	94.37
	July	89.81	93.49	94.41
	August	87.96	91.82	92.70
	September	86.77	90.41	91.34
	October	85.80	89.81	90.72
	November	86.37	90.65	90.80
	December	88.58	92.44	93.48
2001	January	91.11	94.70	95.29
	February	90.48	94.45	94.63
	March	90.33	94.55	95.07
	April	89.71	93.98	94.30
	May	88.57	92.83	93.75
	June	87.66	92.21	93.14
	July	88.17	93.07	93.99
	August	90.16	95.23	95.62
	September	90.52	95.74	95.82
	October	90.54	96.30	96.30
	November	89.61	95.37	95.53
	December	89.98	96.22	96.38
2002	January	89.72	96.11	96.42
	February	89.10	95.55	95.97
	March	89.31	96.12	96.77
	April	89.58	96.70	97.30
	May	91.03	98.61	99.02
	June	92.89	100.66	100.86
	July	93.90	101.69	101.24
	August	93.47	101.40	100.39
	September	93.55	101.67	100.32
	October	93.77	102.14	100.54
	November	94.50	103.21	101.43
	December	95.27	104.28	102.93
2003	January	97.19	106.81	104.01
	February	98.22	108.17	104.55
	March	98.77	109.03	105.08
	April	99.06	109.69	106.54
	May	101.96	112.85	109.03
	June	101.96	112.78	108.50
	July	100.95	111.56	107.51
	August	100.18	110.93	106.69
	September	100.11	110.81	106.88
	October	101.43	112.29	107.80
	November	101.33	112.19	107.56
	December	103.46	114.61	109.08
2004	January	104.12	115.10	109.31
	February	103.84	115.02	108.53
	March	102.50	113.43	107.08
	April	101.33	112.03	105.78
	May	102.01	112.74	106.07
	June	102.08	113.08	106.73
	July	102.46	113.48	105.95
	August	102.36	113.66	105.32
	September	102.74	114.01	105.52
	October	103.70	114.90	105.43
	November	104.94	116.39	106.70
	December	105.90	117.33	107.73
2005	January	105.06	116.20	106.82
	February	104.43	115.42	106.30
	March	105.02	115.77	106.44
	April	104.19	115.04	105.92
	May	103.40	114.29	105.72
	June	101.38	112.14	103.67
	July	101.68	112.52	104.17
	August	102.20	113.02	103.96
	September	101.89	112.98	102.91
	October	101.49	112.55	102.43
	November	100.83	111.66	102.61
	December	100.91	111.28	102.71
2006	January	101.51	112.17	102.61
	February	100.91	111.78	102.50
	March	101.42	112.37	102.71
	April	102.25	113.25	102.94
	May	103.25	114.51	103.29
	June	103.40	114.59	103.20
	July	103.52	114.76	102.87
	August	103.51	115.16	102.83
	September	103.30	114.61	103.50
	October	102.89	114.43	102.89
	November	103.51	114.86	103.18
	December	104.32	115.90	103.99
2007	January	103.58	115.31	103.84
	February	103.89	115.62	103.28
	March	104.61	116.53	103.24
	April	105.27	117.33	103.42
	May	105.24	117.28	103.26
	June	104.83	116.75	103.11
	July	105.40	117.54	103.38
	August	105.26	117.44	104.19
	September	106.15	118.30	104.23
	October	106.95	119.04	105.41
	November	108.31	120.45	105.34
	December	108.41	120.49	106.31
2008	January	109.22	121.16	106.63
	February	109.18	121.37	106.78
	March	111.61	124.41	108.10
	April	112.75	125.14	110.05
	May	112.26	124.55	108.29
	June	112.30	124.37	107.30
	July	112.77	124.20	106.51
	August	110.93	122.08	106.70
	September	109.75	120.75	105.08
	October	107.17	118.05	104.66
	November	106.76	117.95	106.62
	December	110.75	122.38	111.16
2009	January	110.45	121.80	111.18
	February	108.89	119.33	110.21
	March	110.88	121.21	111.90
	April	110.27	120.26	112.05
	May	110.73	120.13	112.14
	June	111.16	120.12	111.59
	July	111.30	119.79	112.14
	August	111.60	119.77	110.96
	September	112.85	120.53	112.50
	October	113.82	121.22	112.90
	November	113.63	120.53	111.83
	December	112.79	119.16	110.68
2010	January	111.22	117.27	108.35
	February	109.32	114.64	107.17
	March	109.20	113.85	106.15
	April	107.93	112.25	104.74
Fall required	7.93	12.25	4.74

Table 2 shows that consumer and producer prices would need to fall by 12.25% and 4.74%, respectively, in real terms to reach the levels seen in January 1999.

Table 3 shows exchange rates between the euro (€) and both the sterling (£) and the dollar ($) on May 28th, 2009 and January 1st, 1999. The euro has appreciated against both currencies in the past 10 years despite weakening in recent months. This means that Irish imports from Britain and the US have become relatively cheaper, while Irish exports have become more expensive to trading partners in the US and UK. To revert to the level seen on January 1st, 1999, the euro would need to depreciate by 5.1% against the dollar and almost 17% against sterling.

Table 3: Exchange Rate movements €/$ and €/£ 1999-2010 (source — www.oanda.com)

	01/01/1999	28/05/2010	Change	% Change required
Eur — US$	1.1674	1.2301	0.0627	5.10%
Eur — GB£	0.7038	0.8476	0.1438	16.97%