The outlook for the economy remains positive for 2006 and 2007, but the pace of growth will slow towards the end of the decade, according to a report released yesterday by Dublin-based stockbroking firm Davy.

Davy predicts that gross national product (GNP) - the value of goods and services produced by the economy allowing for multinational profits - will grow by 6 per cent in 2006 and 5 per cent in 2007, driven by factors such as the release of €16 billion in Special Savings Incentive Account (SSIA) funds between May 2006 and May 2007, and continued buoyancy in the housing market.

Strong consumer spending and the Government's favourable budgetary position will also contribute to economic growth.

While the spiralling level of household debt presents a threat to the continued pace of growth, this risk has been mitigated by high levels of savings and an overall increase in the net worth of individuals.

With current prices in the housing market stretched, a stabilisation or decline in prices is likely. However, while the volume of house completions is expected to fall from 90,000 in 2006 and 2007 to 75,000 in 2010, strong population growth will continue to fuel demand, Davy believes.

Forecasts beyond 2007 indicate that once the housing market peaks and the SSIA stimulus is removed, the rate of economic growth will steady. Davy expects a soft landing, and estimates GNP growth of 3 per cent in 2008, dropping to 2.5 per cent in 2009 and 2010. However, unemployment rates are expected to reach 6.5 per cent by the end of the decade.