Impact of Economic Recovery on Irish Business Fergal O’Brien, Irish Business and Employers Confederation Danish Industries 2 nd April 2008

Ireland past and present GDP €bn36175 GDP per capita €10,35741,205 GDP per capita,79%119% % of EU-15 average Exports €20 bn140 bn Total Debt % of GDP96%25% Total Labour Force1.3 m2.2 m Unemployment12.9%4.4%

2 very different stages of economic recovery  : economic growth based on strong export performance –Spare capacity in economy –Ireland very attractive to FDI –Competitiveness strong –Tax reform central  : economic growth more reliant on domestic demand –Housing boom –Real incomes growing strongly –Retail sector buoyant –Competitiveness weak

Phase 1: Export led recovery  Eliminated unemployment  Strong employment growth in manufacturing and traded services  Social partnership meant that Government provided generous tax cuts in return for wage moderation  Reform of labour, corporate and investment taxes boosted activity in all sectors  High-tech sectors flourished – pharma, ICT  Spin-offs for domestic enterprise also significant

Ireland grasped added Export Opportunity of “Single Market” ….

Surge in new FDI jobs supported

Businesses and sectors benefiting most  Surge in FDI activity  Major spin-offs for Irish-owned SMEs –Particularly ICT sector / inputs to larger manufacturing  Strong evidence of clustering –ICT / Pharma / medical devices  Emergence of internationally traded services sector  Professional services sector benefited greatly

Ireland’s share of world trade now falling

Phase 2: Surge in domestic demand  Inflationary problems emerged from 2001  Coincided with US recession / ICT difficulties  Growth momentum saved by flood of cheap money  Construction activity accelerated  Retail sector booming  Public capital investment programme significant  Growth in employment in public sector  Demographic factors very significant

Housing completions

Personal consumption expenditure

Ireland Denmark: demographics, 2007.

Ireland Demark: demographics, 2050.

Net Migration,

Population trends

Importance of immigration, 2006.

Current challenges  Housing correction was inevitable but has advantages for many business sectors  Combined with global credit crisis makes transition difficult  Export sector under pressure from euro strength  Unemployment likely to rise to circa 6%  Behavioural impact of immigrants will be key  Restoring competitiveness vital

Medium-term outlook  Demographic story remains very positive  Internationally traded services sector key growth area  Lots of work still to do to solve infrastructure deficit  National debt of just 25% GDP  Catch-up period over and stronger focus on cost control needed  Future growth model has challenges for regional development