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‘Productivity gap’ is key economic vulnerability

The risks to Ireland’s prosperity are increasing, the National Competitiveness Council has warned in a new report.

The body says that international economic uncertainty and the return to protectionist trade policy in certain key global economies, along with developments in US tax policy and an evolving international tax landscape, pose a threat to our future economic growth and stability.

Fraction

And it warns that there are laggards in the economy with only a small fraction of firms driving productivity and tax receipts.

“This is disguising the majority of under-performing firms, where productivity growth is stagnant or falling,” the report declares.

Reliance

The narrow range of exporters, products and services exported, and the reliance on a small number of export markets, also pose serious concerns to the NCC.

It is crucial that the Government recognises these vulnerabilities in the fabric of the Irish economy, coupled with the challenging global environment, because they endanger the medium-term sustainability of our economy, the NCC warns.

“It has never been more important in the economic life of our country, that the Government acts now to strengthen our productivity performance and competitiveness to secure our future prosperity,” the report says.

Success

The NCC says that the fruits of Ireland’s remarkable success in attracting foreign direct investment will contribute to enhancing further the competitiveness performance of the whole economy.

“In the context of greater global competition for investment, continuing to build a sustainable and diverse FDI portfolio in terms of sectors, activities and source markets must remain a key priority of our enterprise policy,” the report says.

Enterprise base

Broadening the enterprise and export base is key to ensuring that Ireland's economy is resilient and adaptable in the face of Brexit.

This means that enterprise policy needs to strengthen support for Irish-based firms, specifically SMEs, to help them increase their efforts to scale and diversify sustainably and strategically.

Reform

“Deepening the process of reform that supports the increased internationalisation of such businesses is imperative to reducing exposure to external economic shocks,” the report concludes.

And narrowing the productivity gap that exists between the most productive firms and the “followers” is vital for sustainable growth, and critical to addressing the vulnerabilities in Ireland’s economic model.