Booming on

Ireland’s economic boom is into its second decade. Can it last?
OECD Observer

Click to enlarge.

The Irish economy has transformed in recent years. It grew by 5.1% in 2005, half a percentage point faster than in 2004, driven by strong domestic demand and positive net exports. This continued the remarkable performance of the past decade, during which Irish incomes per capita have caught up with the OECD average. The forecast is for more strong growth in 2006-2007, with unemployment (4.2%) to remain relatively low.

The debate about the causes and durability of Ireland’s booming economy is not new (see references) and the latest OECD Economic Survey of Ireland also devotes space to the question, pointing to the business-friendly regulatory environment, a flexible labour market, moderate tax rates and sound fiscal policy. It highlights not only the economy’s unprecedented growth in incomes, but its resilience too–it rode out the slump in the new economy remarkably well after 2000, for instance. Still, the OECD report sees risks, as well as areas for improvement.

Remaining competitive will be a challenge for a start. Competition policy should be stepped up in a bid to dampen prices, remove bottlenecks and promote productivity and growth. The network industries, such as electricity, telecoms and transport, are in particular need of reform, as are retail services, including pharmacies.

Also, productivity must be improved, the report urges. This may sound surprising, especially since Ireland’s labour productivity has recorded faster growth than any OECD economy since 1995. Also, its labour market has been highly flexible on the hiring and firing side, allowing labour to shift into dynamic services with impressive ease.

But it is precisely that shift that will make further productivity gains harder to achieve. More investment will be required in skills and innovation, for instance, and the labour supply will have to be raised even more, particularly among women. Already the increased presence of young women in the workforce has helped boost growth. Though recent figures from Ireland’s Central Statistics Office (CSO) show female employment is still rising, the potential is still considerable, since as the report notes, female participation remains below the OECD average. Improved childcare would help.

As a very open economy, Ireland’s export competitiveness will become a major challenge. Successive social pacts have played a part in making the business environment attractive, but wage growth has still been fast. According to the OECD report, centralised agreements must not prevent the economy from adjusting to external shocks, such as a sharp fall in the dollar. (Ireland is more exposed to the US dollar than most other EU countries, thanks in part to US business investment there.) One solution the report suggests would be for agreements to run for shorter periods, or to have built-in circuit-breakers, such as an “ability to pay” clause.

The country’s infrastructure, which has creaked a little under the pressure of Ireland’s demographic and economic dynamism, also needs attention. At the same time, the construction industry has been booming, with 80,000 houses built last year alone. House prices have tripled in real terms since the mid-1990s. Demographics, increased wealth and low European interest rates help explain much of this upsurge, and though the report’s authors believe a property market collapse is unlikely, a slowdown in the sector would nonetheless hurt government receipts and affect employment.

One card Ireland has been able to exploit effectively in recent years is its strong relationship with both Anglo-Saxon markets and the euro area, of which it is a member. For instance, its European dimension helped it cushion the effects of a falling dollar in 2002-2003. Investing in infrastructure, while boosting productivity and the labour supply, as well as creating room in public finances, would help Ireland’s economy retain such flexibility and strengthen its resilience further still. RJC

OECD (2006), Economic Survey of Ireland, Paris. The full survey can be ordered at www.oecd.org/bookshop. See summaries and Policy Brief at www.oecd.org/economics. For more commentary, contact Dave.Rae@oecd.org.

©OECD Observer No 254, March 2006




Economic data

GDP growth: +0.6% Q4 2017 year-on-year
Consumer price inflation: 2.6% May 2018 annual
Trade: +2.7% exp, +3.0% imp, Q4 2017
Unemployment: 5.4% Mar 2018
Last update: 06 Jul 2018

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Watch the webcast of the final press conference of the OECD annual ministerial meeting 2018.
  • International co-operation, inclusive growth and digitalisation lead the themes of the 2018 OECD Forum in Paris on 29-30 May, under the banner of What brings us together www.oecd.org/forum. It is held alongside the annual OECD Ministerial Council Meeting on 30-31 May, chaired this year by France with a focus on multilateralism www.oecd.org/mcm.
  • Listen to the "Robots are coming for our jobs" episode of The Guardian's "Chips with Everything podcast", in which The Guardian’s economics editor, Larry Elliott, and Jeremy Wyatt, a professor of robotics and artificial intelligence at the University of Birmingham, and Jordan Erica Webber, freelance journalist, discuss the findings of the new OECD report "Automation, skills use and training". Listen here.
  • Do we really know the difference between right and wrong? Alison Taylor of BSR and Susan Hawley of Corruption Watch tell us why it matters to play by the rules. Watch the recording of our Facebook live interview here.
  • Has public decision-making been hijacked by a privileged few? Watch the recording of our Facebook live interview with Stav Shaffir, MK (Zionist Union) Chair of the Knesset Committee on Transparency here.
  • Can a nudge help us make more ethical decisions? Watch the recording of our Facebook live interview with Saugatto Datta, managing director at ideas42 here.
  • Ambassador Aleksander Surdej, Permanent Representative of Poland to the OECD, was a guest on France 24’s English-language show “The Debate”, where he discussed French President Emmanuel Macron’s speech at the World Economic Forum in Davos.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Rousseau
  • Do you trust your government? The OECD’s How's life 2017 report finds that only 38% of people in OECD countries trust their government. How can we improve our old "Social contract?" Read more.
  • Papers show “past coming back to haunt us”: OECD Secretary-General Angel Gurria tells Sky News that the so-called "Paradise Papers" show a past coming back to haunt us, but one which is now being dismantled. Please watch the video.
  • When someone asks me to describe an ideal girl, in my head, she is a person who is physically and mentally independent, brave to speak her mind, treated with respect just like she treats others, and inspiring to herself and others. But I know that the reality is still so much different. By Alda, 18, on International Day of the Girl. Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2018