The Central Bank is once again calling on Minister for Finance Mr McCreevy to be cautious when framing his next Budget. In this it is joining the European Commission, other EU finance ministers, the IMF and the European Central Bank. All argue that demand in an economy which is "close to the buffers" must be brought back if the economy is not to run into serious trouble.

The economy is set to slow this year. According to the Bank, it will probably grow at around 6.5 per cent in terms of gross national product. This is still ahead of its long-term potential rate of 5 per cent and, given that unemployment is about as low as it can go and there is serious congestion in everything from roads to construction to services, it can only lead to further inflation.

The other worry, according to the Bank's assistant director general Dr Michael Casey, is that the economy is being driven more by consumption than investment or exports, which are far healthier forms of growth.

Some observers have argued that allowing wages and inflation to increase is the best way of slowing down the economy. The theory is that the economy would lose competitiveness and slow down to a sustainable rate of growth.

However, the Bank contends that leaving the slowing of the economy to market forces is dangerous and increases the risk of a "hard landing" - jargon for a possible recession. It points out that markets frequently overshoot and that the danger is that inflation and wages could both do so leading to a loss of markets for Irish products and job losses.

This is not a scenario the Government would want when facing the electorate next year. Nevertheless, the signs are that Mr McCreevy will opt for another tax-cutting, big-spending Budget designed to woo the electorate. He will hope any fall out would be on the far side of a general election. A give-away Budget will also guarantee another run-in with the European Commission and our European partners at the end of the year, another risky strategy for Fianna Fail if it hopes to win a second Nice referendum sometime next year. The Bank argues that, instead, the Minister for Finance should guide the economy down to its sustainable growth rate. It cannot use monetary policy, as interest rates are now set in Frankfurt. Incomes policy, or wages, is already showing signs of overshooting with huge rises being demanded from non-productive areas of the economy. The only area left to the Government is fiscal policy or tax and spending.

Of course all this hinges on the precise economic circumstances at the end of the year. As Dr Casey noted yesterday, things can change quickly. But assuming the economy is still growing above 5 per cent and that the US economy has not gone completely off the rails, Dr Casey insists that a big give-away is a real risk. Privately, however, he is likely to admit that it is a risk Mr McCreevy is likely to be willing to take.