Forecasting short term Irish growth has been easy in recent years. Very little kudos - or money - has been gained by betting against continued strength.

However, forecasts that are continually positive make poor headlines. This, I suppose, is why some economists frequently predict an imminent collapse. This New Year the outlook for the next 12 months continues to be predictable. High inflation is a nuisance, but it will not hinder growth in the short term.

The more interesting and controversial question is what will happen beyond that and what should the Government be doing about it. There are significant issues that need to be resolved. Quite how this is done will determine whether our boom turns to bust or something much gentler.

But first, let's get the predictable bit out of the way: in the absence of some unforeseen calamity, Ireland will continue to expand strongly next year. How can one be so sure? Well, consider the developments that will boost growth in the short term.

Firstly, the Budget is strongly expansionary. Tax cuts and the relaxation of expenditure constraints will be a significant boost to domestic demand. Secondly, take-home pay will be further raised by employment and wage growth. Thirdly, while interest rates have risen significantly over the course of this year, monetary policy continues to be very accommodative from an Irish perspective.

Finally, while the euro appears to have troughed and may move higher, at today's levels Irish exporters are super-competitive. On the negative side, there is the prospective downturn in US growth but this is outweighed by the positives.

But what will happen towards the end of next year and beyond? The economy will slow down, of this there is no doubt. The question is how. With interest rates being set by the ECB, monetary policy cannot force the adjustment. In the absence of that tool, higher wages will have to do the job, by reducing the incentive for multinational and domestic companies to invest in Ireland, thereby leading to a slowdown.

This conclusion should not be seen as a licence to go out on strike for higher wages. While we need wage inflation, we need it to take place in a relatively ordered manner.

Naturally, the authorities cannot control wages in the same way that a central bank controls interest rates. But their actions do have some influence. The question then is whether the Government's policies constitute the best means of achieving an ordered rise in wage growth.

An increasing number of economists - myself included - believe the existing policies do not represent the best means of achieving that goal. The lengths to which the Government has gone to save the Programme for Prosperity and Fairness is likely to make the problem worse in the long run.

Moreover, the terms of the agreement are being ignored anyway. According to the CSO, public sector wages rose 5.1 per cent in the 12 months to June 1999 - the most recent available data. Industrial wages rose by 4.9 per cent and wage inflation has undoubtedly accelerated since then.

If the agreement is being ignored, why implement an expansionary budget to save it? Doing so only boosts demand for labour, thereby increasing pressure on wages.

The other argument for lowering taxes used by the Minister for Finance, Mr McCreevy, was that it would attract more people into the labour market. That argument was plausible when unemployment was 14 per cent. It doesn't hold weight when it's 4 per cent.

A better alternative would be to abandon the wage agreement, while streamlining the means of resolving industrial disputes.

The national wage agreements have been an integral part of Ireland's success since the late 1980s so abandoning them may seem like heresy. But Ireland in 2001 is different from Ireland in the 1980s and the old policies may no longer be appropriate.

Economist Kevin Daly can be contacted at k.daly@ucl.ac.uk