The Central Bank yesterday escalated its warnings about unsustainable growth in house prices and lending in reaction to a re-acceleration of activity in the housing market.
Mr Tom O'Connell, assistant general secretary of the bank's economic policy division, said he was concerned and surprised about renewed growth in house prices.
"The financial stability report last year drew comfort from a deceleration but this seems to have been reversed and this is somewhat worrying," Mr O'Connell said.
House price growth reached 8 per cent overall last year with different categories of housing showing an upturn. "This is happening against a backdrop where house prices are already high."
The latest intervention represents an escalation in a series of warnings issued regularly by the bank in its publications.
In its latest quarterly bulletin, the bank sees the growth outlook improving for the European economy as it draws strength from continued growth in the US and Asia.
It forecasts gross domestic product (GDP) and gross national product (GNP) - alternate measures of the amount of goods and services produced each year - to grow this year by 4.75 per cent and 45 per cent, respectively.
The bank expects employment to grow by 3 per cent this year, while productivity is forecast to grow by 1.5 per cent next year.
"In the past year or two, growth has been relatively labour-intensive and this has been associated with lower productivity growth.
"While employment in 2005 is estimated to have increased by about 4.5 per cent, the growth in productivity is estimated to have been as low as 0.5 per cent," Mr O'Connell said.
He attributed this to a lack of competition in parts of the economy. "We don't have competition in some sub-sectors of the services sector and this results in prices charged by those sub-sectors to other sectors being on the high side. This is not optimal."
Concern was expressed at the presentation about the Government's tendency to increase spending during times of high economic activity.
Mr O'Connell said that the Government had moved from a position of budgetary surplus to a position of deficit at a time when the economy was performing well. "The recent budget did impart a pro-cyclical stimulus to the economy. The tax take from the property sector is very high. There has to be prudence to ensure that any downturn can be handled by the public sector," he said.
In an assessment of the implications of EU enlargement for foreign direct investment here, Central Bank economist Alan Murphy concludes that multinational investment in Ireland is heavily concentrated in high-technology sectors that are less vulnerable to wage competition.
However, his paper also concludes that Ireland would be vulnerable if those sectors were subject to any worldwide fall in demand for their products.
