The OECD has adjusted its economic forecasts for the Republic marginally. In its mid-year Economic Outlook, it has increased its estimate for growth in gross domestic product this year from 3.25 per cent in April to 3.5 per cent.

However, it has adjusted its forecast for 2003 from 6.5 per cent to 6.3 per cent.

But the Paris-based economic think-tank has repeated the criticisms contained in a draft Economic Outlook published last April.

It has warned that inflation will fuel wage growth and dampen the prospects of economic recovery.

It has also pointed out that "failure to control the expansion of the public sector would magnify such a risk".

It warned that there was "increasing urgency" for decisions about the size and structure of the public service.

If the recovery in the communications and technology sector is stronger than expected, then companies in this sector could find themselves competing for workers with the expanding public sector, according to the report.