IBEC, today launched its latest Quarterly Economic Trends, which said that the Irish economy is beginning to pull out of a deep recession

IBEC is more optimistic about Ireland's recovery and has revised its economic forecasts upwards. The group now forecasts that the economy (GDP) will shrink 0.7% in 2010, in contrast to its earlier prediction of 1.6%. For 2011, it has pushed up its forecast rate of growth from 1.7% to 2.1%.

IBEC Director General Danny McCoy said: "Tough action to stabilise the public finances has resulted in some restoration of confidence in Ireland on international financial markets. Confidence, however, is a fragile  commodity and any undermining of the national effort will increase the cost of servicing the national debt.

"The harsh corrective action taken in the budget  is re-establishing Ireland's credibility in international financial markets. This is reflected in Irish bond yield spreads over  German ten year bonds since the budget, which have stabilised and even narrowed, in contrast to Greece, Spain and Portugal, where spreads widened. The reward for this recognition is tangible. The cost of borrowing for government debt has reduced and the Government's ability to raise debt has eased.

"This hard-won credibility must be sustained. Financial markets are ruthless in their pursuit of any perceived weakness and the Irish economy remains in the spotlight. Any deviation from current economic targets will be punished by higher interest rates and credit restrictions.

"Trade unions should be aware that threats of industrial action gain international notice and could rapidly undo the credibility that has been established. So far Ireland has demonstrated the flexibility of its labour market. In both the public and private sectors there have been wage reductions,  pay freezes and changes in work practices. This was necessary. Wages had increased much more rapidly in Ireland than in the euro area in the seven year period 2002-2008, precipitating a serious competitiveness decline. As a result, unit labour costs increased by 31% in the period, compared with an increase of 9% in the euro area.

"In a single currency, there is no currency depreciation option to restore lost competitiveness. This can only be achieved by unit cost reductions, brought about by a combination of pay reductions  and productivity gains. The European Commission calculates that unit labour costs in Ireland will have fallen by 6% in the two years 2009-2010, compared with an increase in the euro area of 2.9%.

"Improved productivity comes from better work practices and investment in the best available technology, skills and infrastructure. It is important therefore that within the consolidation process, government does not lose focus on these more positive medium-term goals, which are just as important in reviving and maintaining the confidence of investors in the Irish economy."

Article Published: 15/03/2010