The National Competitiveness Council today warned that the country's productivity growth has slowed to its lowest rate since the early 1980s.
Launching the first volume of its ninth annual Competitiveness Report, the Council says that the strong productivity growth during the 1990s was driven by a narrow base of modern manufacturing industries, while research suggests little productivity growth in the services sector, which now accounts for the majority of employment in the Irish economy.
Today's report says that with imports growing faster than exports, the country's net exports are now a drag on economic growth. Ireland's share of world trade peaked in 2002 and has been in decline since. World trade grew by an average of 6% a year between 2002 and 2005, while Irish exports grew by an average of just 2%.
The report also says that in the five years to March 2006, manufacturing industries lost over 32,000 jobs and fell as ashare of total employment from 15% to 11%. Construction accounted for 13% of those in employment in March 2006, twice the share of employment in Germany or the US.
This year's report show that the underlying impetus to the country's continuing economic expansion has 'shifted from the broadly based and export-led growth of the late 1990 to a growth pattern that by 2005-2006 has become dependent on domestic consumption, residential construction investment and public spending'.
It says that the country's ability to recover some of its lost export competitiveness will depend on the attractiveness of the domestic business environment for a new generation of high value-added, knowledge-intensive exporting countries.
The report urges action on prices and costs, pointing out that a range of non-pay costs for business are relatively high compared to other countries, especially office and industrial rents, electricity, waste and professional services. Pay costs have also been rising faster that in other EU-15 countries.
The NCC says that while direct personal and corporate tax rates here remain competitive, the advantage of this for growing businesses is being offset by increasing local taxes and levies.
It also says that while rates of secondary school completion and third level participation are rising and compare well with EU averages, pre-primary and post-graduate education remains under-developed here. It adds that adult participation in 'life-long learning' remains well below the leading countries.
On technology, the NCC says that the number of computers in secondary schools remains too low, while too few homes and businesses are connected to broadband.
The country's road, air, seaports, energy and communications infrastructures are all thought to be insufficient by the standards of other advance countries, although industry perceptions have improved recently.
Finally, today's report says that business expenditure on research and development has remained static with the bulk of this R&D undertaken by a small number of foreign owned firms.
'To maintain Ireland's competitiveness, we need a consistent focus on moderating price and cost increases, improving the physical infrastructure, developing pre-primary and fourth-level education and achieving a better innovation performance, particularly in the business sector,' commented Martin Cronin, CEO of Forfas and a member of the NCC.
