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

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

  • 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.
  • How do the largest community of British expats living in Spain feel about Brexit? Britons living in Orihuela Costa, Alicante give their views.
  • Brexit is taking up Europe's energy and focus, according to OECD Secretary-General Angel Gurría. Watch video.
  • OECD Chief Economist Catherine Mann and former Bank of England Governor Mervyn King discuss the economic merits of a US border adjustment tax and the outlook for US economic growth.
  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • 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.
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa. blogs.worldbank.org
  • 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 .

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 2017