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News : Irish Economy Last Updated: Apr 3, 2014 - 9:42 AM

Ireland is high cost business location; Labour, electricity, business service costs, rising
By Michael Hennigan, Finfacts founder and editor
Apr 2, 2014 - 7:19 AM

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Ireland is still a high cost location for a number of key business inputs and the economy is at turning point in terms of cost competitiveness, with overall relative cost competitiveness disimproving and a series of upward cost pressures emerging: the harmonised competitiveness indicators show that Ireland’s relative cost competitiveness is now deteriorating vis-à-vis our main competitors; labour costs are rising again following a number of years decline, industrial electricity prices have increased in recent years; and an upward trend is evident across a range of business service costs.

This depressing news comes from the National Competitiveness Council (NCC), an Irish Government agency.

We reported in January this year, that Ireland was the only country in the EU to experience a decrease in inflation between 2008 and 2012 but prices remain high by EU standards, according to the report Measuring Ireland’s Progress 2012 , published by the CSO. Ireland was the fifth most expensive EU state in 2012, after Denmark, Sweden, Finland and Luxembourg with prices 15% above the EU average. However, this represents a considerable improvement on 2008 when Irish prices were the second highest in the EU, at 30% above the EU average.

Dr Don Thornhill, NCC chairman, said yesterday on the publication of the agency's latest report [pdf] on business costs: "Recent price falls are largely a cyclical response to the Irish and international recessions rather than a response to structural changes in the Irish economy. In this light we need to see the Government’s continuing focus on those aspects of the economy which drive costs for business. Reforms that reduce business costs and improve productivity need to become the new story of the Irish economy.”

Summary Findings

Labour Costs

  • Following a number of years of marginal decline, labour costs in Ireland are on the increase. In 2012 and 2013 Irish labour costs grew by 2.4% and 0.5% respectively, against a backdrop of still elevated unemployment.
  • Gross earnings are the 8th highest in the euro area while net wages are the 6th highest.

Property Costs

  • Following several years of cost reductions the commercial property market has begun to stabilise. There is a risk of shortages in prime office space which could result in rent increases.

Transport Costs

  • Diesel prices are 7% more expensive in Ireland than in the euro area. While it is expensive to export from Ireland, Irish administrative processes are efficient and compare favourably with processes in key competitor countries.

Utility Costs

  • Electricity costs in Ireland are relatively high with Ireland the 5th and 6th most expensive location in the euro area for SMEs and large users respectively.
  • Landfill gate fees are the 5th most expensive out of 10 countries while non-hazardous thermal treatment fees are 3rd highest out of 9 countries.
  • Ireland is the 5th most expensive location out of 16 for industrial water costs. Water services are currently undergoing a major reform and the cost impacts from these reforms are not yet clear.
  • Telecom costs are relatively competitive though concerns persist in relation to the quality (speed) of services available.

Credit Costs

  • New business interest rates for non-financial corporations are higher in Ireland than in the euro area with Irish rates 31% higher for loans up to €1 million and 27% higher for loans above 1 million.

Business services and other input costs

  • Throughout 2012 and 2013 prices for a range of business services have been increasing in Ireland. This follows a period of significant price declines over the course of the recession. In Q3, prices were 3.4% above 2010 levels.

Broader Cost Environment

  • Ireland’s current price level and inflation profile can be described as high cost but rising slowly. In 2012 Ireland was the 3rd most expensive location in the euro area for consumer goods and services. Irish prices were 14.6% above the euro area average. Irish price levels remain above the euro area average in 10 of the 12 key product categories.
  • Since the recession, the principle contributors to Irish inflation have been Miscellaneous Good and Services (driven by health insurance), Transport, Alcohol and Tobacco, Education and Health.

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