ONE of London's leading investment houses has predicted a continuation of strong economic growth here, contrary to a view prevalent in the City of London that Ireland is heading for an economic "bust."

Low labour costs, high foreign direct investment and strong corporate profits will continue to prompt high growth in the EMU's economic "tigers", including Ireland, in the coming years, according to the London office of investment bank Salomon Smith Barney.

According to the report some commentators fear that the boom - particularly in credit and property - in the peripheral countries will be followed by a bust. "However, in our view, the peripheral countries probably will continue to boom for some time unless there is an unexpected asymmetric shock" "Eventually these countries will lose competitiveness as higher inflation lifts their real exchange rates, but this process will take many years. In the meantime, these countries will enjoy superior fiscal positions plus faster gains in profits and jobs compared with the euro-area average."

The report says that high growth in Ireland, Spain and Portugal chiefly reflects their competitive advantage from low labour costs, both wage and non-wage costs. Wage levels in Spain and Ireland are about half the German level, and less than 70 per cent of the euro zone average, and moreover these differences have been stable or widening since the early 1990's due to currency devaluations earlier in the decade.

According to the report, in time rapid economic growth and falling unemployment will lift wage gains and land prices enough to erode the peripheral countries competitive edge, causing growth to decelerate to match the core economies. "Given that labour costs disparities currently are wide and are not closing quickly, the chance that this process will take time, perhaps between five and 15 years."

The report says that buoyant tax receipts are improving these countries fiscal position and are allowing relatively low personal and corporate tax rates, plus rapid gains in infrastructure spending.

"Ireland is relatively well placed in terms of employment in research and development, and higher educational levels among younger workers are improving the quality of human capital."

Given the strong exchequer surpluses in Ireland, the emphasis will be on fiscal measures which will be aimed at improving the economy's supply side.

The report says that the reduction in cohesion funds over the next decade may prompt some restraint fiscally but this will not be enough to eliminate growth differentials between the tiger economies and the core.