Irish business borrowers are paying 80 per cent more for modest commercial loans than the euro zone average, according to a new report from a group which advises the Government on economic trends.
In a damning critique of escalating costs in an assortment of sectors, the National Competitiveness Council warned of a return to boom-era risks to the entire economy from the dysfunctional property market.
The council’s annual Cost of Doing Business in Ireland report also took issue with increasing levels of industrial unrest and high costs for childcare, insurance, legal, transport and energy services.
Consumer prices remain more than 20 per cent higher than the euro zone average, it said. The high cost of credit for business also placed Irish firms at a disadvantage.
New business
“In November 2015, the interest rate in Ireland on loans of up to €0.25 million was more than 80 per cent above the euro area average rate for new business; the rate on loans of up to €1 million was more than 60 per cent more expensive in Ireland.”
Amid complaints of a new property “crisis”, the report found that availability and cost were again a “significant threat” to sustained competitiveness.
“In particular the dramatic increase in residential rents [back to pre-recession levels] is a major cause for concern with potentially significant adverse consequences for the entire economy.
“Rising rents and increasing house prices will inevitably impact upon wage demands, increase the cost of living and will damage competitiveness.
“Likewise, the rapid increase in commercial rents – especially for retail property – is a concern.
“Our previous property boom was at the root of so many of our recent economic problems. We must try to avoid this sector undermining the current economic recovery and threatening its sustainability in the future.”
The council said sterling’s slide in currency markets, which comes ahead of the Brexit referendum, was already creating challenges for Irish exporters.
“The recent appreciation of the euro vis-à-vis sterling provides a timely warning about just how vulnerable Irish firms are to external shocks: the appreciation of the euro has placed Irish exporters under increased cost competitiveness pressure,” said Prof Peter Clinch, the University College Dublin academic who chairs the council.
“This reinforces the importance of prioritising policies and actions that are within Ireland’s control to enhance cost competitiveness.”
Sterling’s value
This warning from the council – which draws members from the public sector, business groups and trade unions – comes amid concern that a British vote in June to leave the EU would prompt further declines in sterling’s value.
The council also said childcare costs in Ireland were second highest for couples in Organisation for Economic Co-operation and Development (OECD) states and the highest in the OECD for lone parents.
Saying labour costs have been growing “marginally more quickly” than the euro zone since 2014 and the wider EU since late 2015, the council said wage growth should not outpace productivity growth
In a statement, Minister for Jobs Richard Bruton argued against “profit-taking” from business that put pressure on living costs.
“While wage demands are understandable given the experiences of people over the past eight years, this is not the time for big increases outpacing productivity growth.”
