The Small Firms Association has said the general outlook for the Irish economy remains reasonably favourable, though it added that it expects growth to be slightly lower than Budget forecasts because of weaker world growth, the strength of the euro and the continued pressure on oil prices.
In its Spring Economic Statement, the SFA forecasts GDP growth of 5.1% for 2005, an unemployment rate of 4.2% and labour growth below 2%. It said that it is still seriously concerned about wages increases, which averaged 5.4% last year against productivity growth of just 2.6%.
'The current level of wage drift is not sustainable and will further undermine employment prospects in the exposed sectors of the economy,' commented SFA Director Pat Delaney.
'Irish labour is now overpriced at 134% of the EU average. There is no competitive reason for production industries to develop bases in Ireland,' he added.
The SFA says its inflation forecast for this year is 2.5%, but it says much will depend on Government behaviour, as the public sector is now the major driver of Irish inflation.
It said that while inflation continued its downward trend last month, recording 2.2% as a result of the strength of the euro and seasonal discounting, the services sector inflation rate of 4.1% remains a major concern and the public sector inflation of 6% in health and education and energy at 9.4% have reduced the real benefit of a stronger currency.
'The changing economic environment brings Ireland's competitive position into sharper focus and makes a compelling case for spending growth to be limited to revenue growth, wage moderation, major changes in the costs of providing local authority services such as water, waste, environmental and delivery of the long overdue benefits of the liberalised energy market,' Mr Delaney said.
