The Irish economy appears to have achieved a soft landing but there is unlikely to be a return to strong year-on-year growth until the second half of this year, AIB has said. The bank's treasury economist, Mr Oliver Mangan, said the downturn had been confined mostly to the manufacturing sector.

Employment continued to grow while consumer and Government spending, as well as construction output, registered solid growth throughout last year.

Most leading indicators pointed to a strengthening of economic activity in 2002, in line with recent global trends, AIB said. "Domestic economic conditions also remain very favourable with a very expansionary fiscal policy, exceptionally low interest rates and a weak exchange rate," Mr Mangan said.

However, given the very high annual growth rates registered in the first-half of 2001, year-on-year growth this year is likely to be muted.

For 2002 as a whole, AIB forecasts that GDP growth will average no more than 3.5 per cent despite a marked strengthening of activity during the year.

Mr Mangan also cautioned that there were a number of areas of concern. The numbers out of work have increased by 20,000 in the past six months and look set to continue rising for some time, he said.

He also pointed to the continuing rapid growth in current Government spending and rising inflationary pressures.

"Both have the potential to inflict considerably more damage on the Irish economy than the global downturn did in 2001 and need to be brought under control sooner rather than later," Mr Mangan said.