The economy will grow strongly over the next two years but the Government needs to take action to curb inflation, the Organisation for Economic Co-operation and Development (OECD) said yesterday. Una McCaffrey reports.
The Paris-based think tank highlights network industries such as telecommunications and electricity and "liberal professions" such as law and accountancy as requiring particular attention.
It warns that inflationary pressures will "rebuild gradually" between now and the end of 2006 as the economy grows at around 5 per cent per year. The Government should tackle these pressures by "unleashing market services" in the services sector and by easing retail regulations, the OECD urged.
The twice-yearly economic outlook does not specify the retail regulations that need to be eased, but planning guidelines are likely to be on the list.
The Minister for the Environment, Mr Roche, said last month that he intends to relax the current ban on superstores to allow furniture giant Ikea to locate in Ireland.
The OECD also called for wage moderation. It sees inflation rising from 2.4 per cent in 2004 to 2.8 per cent in 2005. A further increase to 2.9 per cent is expected for 2006.
The organisation has forecast growth in gross domestic product of 4.9 per cent this year and 5.5 per cent in 2005. For 2006, it has pencilled in a fall back to 4.9 per cent.
The forecasts, which are at the optimistic end of consensus predictions, are based on expectations of buoyant growth in exports and consumption.
Risks to the outlook include further increases in the value of the euro and higher interest rates.
The OECD judges that euro-zone rates should be kept on hold at 2 per cent for the next few quarters but it envisages a climb to 3 per cent late in 2006.
The historically-low rates currently in place have done little to support euro-zone growth because their effect has been cancelled out by euro strength, the OECD said.
In general, the think tank takes a "reasoned but positive bet" on euro-zone growth rates. It tables a significant pick-up in demand towards the end of next year, predicting GDP growth of 1.9 per cent for 2005, and 2.5 per cent for 2006.
For the US, the organisation is expecting growth to drop by more than one percentage point to 3.3 per cent in 2005.
