DESPITE living with the second highest prices in the European Union, Irish people still enjoyed the fourth highest real incomes last year, according to a new analysis.

Although only Denmark is more expensive, Ireland's average national income of €39,000 per person was enough to make up the difference in terms of purchasing power, behind just Luxembourg, Netherlands and Austria.

However, the recession was eroding Ireland's position rapidly last year, according to the report, 'Measuring Ireland's Progress', from the Central Statistics Office.

The report demonstrates how Ireland fared in the economic, social and environmental spheres during the course of last year.

As well as showing developments over time, the report benchmarks the situation in Ireland against the other EU member states.

The progress report will be the first since the recession hit. This time last year the same report, in that case for 2007, was unsurprisingly more positive.

National income (GNI) fell 4pc during the course of 2008, from a figure of €40,600 in 2007. Real incomes fell from a peak of 128pc of the EU average in 2006 to 121.5pc last year.

The CSO figures indicate again the difficulty in comparing Ireland with other countries.

Irish income last year was 14pc less than output (GDP) because so much GDP comes from foreign firms.

Apart from Luxembourg, the next biggest difference between these two measures is in Greece, where it is just 3.7pc.

Failure to recognise this difference has led to many mistaken impressions of Ireland's position in the EU, including levels of income, debt and government spending.

Competitiveness

The report also notes that Ireland's competitiveness, based on consumer prices, has gradually worsened since euro membership in 1999.

Consumer prices rose rapidly relative to the rest of the EU from 1998 to 2002. But relative prices have remained stable since.

Between 2001 and 2004 the euro rose strongly against the dollar, which is bad for competitiveness, and then rose again over the following two years.

The euro was fairly stable against sterling from its inception until last year, when it rose strongly against the British pound.

This contributed to the loss in the competitive measure last year -- the second worst after 2002 since the launch of the euro.

And Ireland, for so long the leading recipient of foreign direct investment into the EU, recorded the biggest fall in such investment in 2008.

It was one of only three -- along with Finland and the Netherlands -- to suffer such a fall.

FDI into Ireland fell by 4.5pc of economic output (GDP) compared with a rise of 1.1pc of GDP in the 16-nation eurozone.