The economy will continue to grow strongly this year but tax cuts and a clearer immigration policy are needed to offset an outbreak of wage inflation, according to Goodbody Stockbrokers.
In its quarterly Irish economic review, it suggests economic activity will remain buoyant with the economy set to expand by 7.7 per cent in 2000. Much of this growth will be driven by consumer spending which could account for 55 per cent of the overall economic growth rate.
The number of people at work will increase by 83,800 this year, but the brokers point out that the labour market still needs 24,500 additional workers to meet demands.
The report warns against complacency, stressing the need for taxation reforms and a clearer immigration policy to curb wage inflation, which it suggests now poses the greatest threat to economic stability. "There is a real potential for an outbreak of wage inflation which will be detrimental to sustaining growth. This can only be combated through continuing cuts in taxes and through implementing a targeted immigration policy to attract 24,500 workers to the economy," according to Goodbody head of research, Mr Colin Hunt.
The report advocates the extension of the existing working visa scheme to experienced service sector workers, adding that the proposals to issue work visas to non-EU nationals with construction, nursing and information technology skills are to be welcomed.
Regarding the housing market, Goodbody believes fears of a collapse in house prices will wane over the next 12 months. It has revised its forecasts for house price inflation from 15 per cent to 17 per cent for this year, suggesting increases will slow to around 12 per cent in 2001, helped by the roll out of an increased supply of serviced land and more modest income growth.
Meanwhile banks and building societies will follow AIB and Northern Rock in raising mortgage and deposit interest rates this week. Mortgage and loan rates are set to rise by 0.5 of a percentage point following the increase in European Central Bank rates last week.
AIB was the first financial institution to adjust its interest rates, with mortgage, loan and deposit rates all rising from tomorrow. The UK-based Northern Rock group, which offers a direct savings account for Irish customers, also announced it was raising rates from next month.
As a result of the rate increases, mortgage holders can expect their monthly repayments to rise in the coming months. AIB increased its mortgatge rate by 0.7 of a percentage point to 4.99 per cent, with the bank passing on the full impact of two rate rises since last April.
Higher interest rates will increasingly be passed on to savers, with adjustments of up to 0.5 of a percentage point expected.
The latest increase in ECB rates, which was greater than had been anticipated, is expected to be the last until the autumn, with signs that further increases are likely towards the end of the year.
