IBEC says looking forward into 2010 and 2011, the global upturn will assist exporters to a limited degree. The greatest increases in growth will be in the developing country markets, especially in Asia, where Ireland does not yet have a significant presence. For Ireland, therefore, the trading climate is likely to remain challenging. The US economy is moving out of recession much more rapidly than the European Union, but the sustainability of that recovery as fiscal and monetary policy supports are withdrawn is not a certainty. Within the euro area, the German export-led recovery is unlikely to give a major boost to other member states unless accompanied by a revival in domestic consumption. The UK economy will not be a vibrant source of demand for Irish exports.

The UK has a public deficit problem as large as that of Ireland which, together with political uncertainty surrounding the upcoming general election has put further downward pressure on sterling. This will continue to make competition with the UK extremely difficult. The loss of output from Dell will be a drag on growth statistics for the first half of the year and the negative carryover in output generally into 2010 of 3.5% will make it difficult for the manufacturing sector to make any gains in 2010. The Purchasing Managers Index remains stubbornly under 50, the borderline between growth and decline. IBEC therefore expects little growth in manufacturing, which is likely to result in further employment losses of the order of 3%.

According to the Purchasing Managers Services Index, output and employment up to February were still in decline. The consolidation process under way in the public sector suggests that output and employment will also decline in 2010.

IBEC Director General Danny McCoy said:"Tough action to stabilise the public finances has resulted in some restoration of confidence in Ireland on international financial markets. Confidence, however, is a fragile commodity and any undermining of the national effort will increase the cost of servicing the national debt.

"The harsh corrective action taken in the budget is re-establishing Ireland’s credibility in international financial markets. This is reflected in Irish bond yield spreads over German ten year bonds since the budget, which have stabilised and even narrowed, in contrast to Greece, Spain and Portugal, where spreads widened. The reward for this recognition is tangible. The cost of borrowing for government debt has reduced and the Government’s ability to raise debt has eased.

"This hard-won credibility must be sustained. Financial markets are ruthless in their pursuit of any perceived weakness and the Irish economy remains in the spotlight. Any deviation from current economic targets will be punished by higher interest rates and credit restrictions.

"Trade unions should be aware that threats of industrial action gain international notice and could rapidly undo the credibility that has been established. So far Ireland has demonstrated the flexibility of its labour market. In both the public and private sectors there have been wage reductions, pay freezes and changes in work practices. This was necessary. Wages had increased much more rapidly in Ireland than in the euro area in the seven year period 2002-2008, precipitating a serious competitiveness decline. As a result, unit labour costs increased by 31% in the period, compared with an increase of 9% in the euro area.

"In a single currency, there is no currency depreciation option to restore lost competitiveness. This can only be achieved by unit cost reductions, brought about by a combination of pay reductions and productivity gains. The European Commission calculates that unit labour costs in Ireland will have fallen by 6% in the two years 2009-2010, compared with an increase in the euro area of 2.9%.

"Improved productivity comes from better work practices and investment in the best available technology, skills and infrastructure. It is important therefore that within the consolidation process, government does not lose focus on these more positive medium-term goals, which are just as important in reviving and maintaining the confidence of investors in the Irish economy."