Wednesday, February 24, 2010

Economics 24/02/2010: Ireland and EU16 Competitiveness

Charts below show our relative competitiveness, as measured by the harmonized competitiveness index (HCI) based on consumer prices (CPI) and reported by the ECB.

Charts 1-3:

Despite massive deflation, compared to the rest of Euro area, Irish economy has managed to record only a small improvement in HCI (CPI) of 1.57%, while the Euro area recorded an improvement of 2.22%.

Charts 4 and 5 show the latest data for harmonized competitiveness indicator based on GDP deflator.

Charts 4-5

Once again we are not in a very good club, folks. And another worrying thing – we are not at the competitiveness gains game anymore either. Table below illustrates

Figure 6

After Q1 2009, we stopped gaining in quarterly change in competitiveness and instead moved into positive territory – signaling deterioration in competitiveness. Net positive – we did so at a slower pace than the Euro area as a whole. But does this help much, when you consider that we are the third sickest economy by this measure in EU16 after Luxembourg and Spain?

So, ok, may be labour costs adjusted for productivity help us in our quest for competitiveness. After all, we do have pharma and medical devices sector here that is performing miracles when it comes to transfer pricing-backed growth in output per worker? And the two sectors weathered the storm of the crisis pretty well so far.

Charts below illustrate:

Figures 7-8
Not really. Harmonized competitiveness index based on unit labour costs also shows us to be the weakest point in the Euro-land chain. And it also shows that in Q3 we have gone into reverse when it comes to gaining competitiveness. We are now pulling away (once again) from the Euro area average.

All of this is instructive – for all the robust talk about Ireland gaining in competitiveness, restoring our advantageous relative position compared to EU counterparts, real data shows we are now getting economically-speaking sicker, not healthier… Time to start thinking about changing our policies, anyone?
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