"Warning signals raise doubts on Ireland's vibrant economy" says the headline in today's Financial Times. The report contains all the usual warnings that will already be familiar to the sceptical. The fall in aggregate productivity rates is highlighted - they have fallen from almost 3 per cent in the 1995-2000 period to 1.75 per cent over the past five years. The Central Bank estimates the implied productivity rate last year, given employment increased by 4.5 per cent, was a modest 0.5 per cent. David Croughan, chief economist at IBEC is quoted as saying that "growth is being achieved by strong employment gains in sectors that are experiencing little, if any, productivity growth."
The problem here is that most of our economic growth may be achieved by employment growth, especially in sectors that experience little, if any, productivity growth. Economic growth achieved almost entirely by employment growth, the IBEC man warns, "may ultimately result in loss of competitiveness as infrastructure bottlenecks result in lost output and inflation". This is why so much reliance on construction is not at all healthy. The FT writer points out that "Ireland's dependence on construction growth makes it more like Greece, Spain or a developing economy than a high-productivity technology-driven economy like Finland". Almost 13 per cent of the workforce is in construction, compared with 8 per cent in 1997. As it is the construction sector is very exposed to the possibility of interest rate rises. In that case there would be rapid and widespread job losses and the rate of economic growth would be pinned back sharply.
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