A review of the competitiveness of the Irish economy, to be published this morning, will strongly criticise Government policy.
The Annual Competitiveness Report (ACR) of the National Competitiveness Council (NCC) will warn that Ireland's performance is "relatively weak" in a number of policy areas, including investment in research and development, competition policy and use of information and communications technology.
The focus of Government policy should be in these areas, argues the chairman of the NCC, Dr Don Thornhill, in the preface to the report.
"In the long run, in a small regional economy like Ireland economic prosperity ultimately depends on our ability to sell goods and services abroad, and therefore on the productivity of our economy.
"The NCC believes that the crucial challenge for Ireland is to put the policies in place now that will develop the conditions necessary to drive productivity growth in the coming decades," says Dr Thornhill.
Productivity is the value of the goods and services produced by the economy measured relative to the number of hours worked.
It is an indicator of the general competitiveness of a country, and the ability of companies based there to sell their goods in international markets.
If rises in wages are not matched by increased productivity, the competitiveness of the economy is reduced.
"Enhanced productivity can enable both domestically and internationally-trading firms to sustain their competitiveness in a relatively high-cost environment by using inputs more efficiently," according to the report.
"In the long term, it [ productivity] is the key source of competitiveness. High and increasing levels of productivity support long-term economic growth and a higher standard of living for all," says the report.
While Ireland's overall productivity performance is strong, the ACR indicates significant divergences in performance across sectors.
A range of Irish economic sectors, including agriculture, retail and wholesale trade, utilities such as the ESB, construction and general services, have recorded a much weaker performance than their EU and US peers, says the report.
The competitiveness council was established by the Government in May 1997 as part of the Partnership 2000 Agreement.
It is required to report to the Taoiseach each year on key competitiveness issues for the economy, together with recommendations on policy actions required to enhance Ireland's competitive position.
This year - for the first time - it has separated its assessment of the competitive position of the economy - which will be published today - and its policy recommendations, which will be made later this year in a report called the Competitiveness Challenge.
The NCC concludes that Ireland is falling behind its peers in continental Europe and North America in terms of prices and costs competitiveness.
It says that while Irish prices and costs are no longer increasing at a rate faster than elsewhere in the EU, they have stabilised at a much higher level.
"The ACR highlights particularly high relative costs in the energy and waste-management sectors, and also notes the moderation of insurance costs," says the report.
It says the moderation of insurance costs "shows the benefits of sustained implementation of well thought out policies".
"National policies in areas such as energy, waste and other externally-imposed costs can have significant impacts on competitive performance at firm level.
"This is particularly true of small countries like Ireland that are highly open to international trade."
