Goodbody Stockbrokers cut its growth forecast for the economy yesterday but said the desired "soft landing" was under way.

The brokers's revised forecast of 5 per cent growth in gross domestic product (GDP) was still ahead of the 3.6 per cent forecast last week by the Department of Finance, but Goodbody called for fiscal and wage restraint. GDP is the value in monetary terms of the goods and services produced by the economy.

The Republic will enjoy a solid absolute performance "and one which should be regarded as spectacular in real terms", according to Goodbody chief economist Mr Colin Hunt, who is one of the most consistently bullish private-sector commentators.

While noting that such growth would still be the highest in the OECD, he warned that the most testing economic risks were mostly internal.

The half of a percentage point cut in GDP reflected restrained consumer demand and over-supply in the commercial area, although resilient exports would continue to drive growth, he said.

Even so, Mr Hunt - who recently turned down the post of economic adviser to the Minister for Finance, Mr McCreevy, - called for a reduction to 6 per cent from 16 per cent in current Government spending growth.

Mr Hunt said such constraints presented the "only" context in which discussions on the benchmarking of public- and private-sector wages should be conducted.

He said: "Policy involves choice. The cost of full implementation of the benchmarking report if fiscal policy is to return to an appropriate setting will be small real reductions in non-pay current expenditure."

Failure to adapt "behaviours and expectations" to the changed environment would erode competitiveness and damage the health of the labour market.

"Wage expectations must moderate to reflect reduced growth momentum and looser labour market conditions not only in the private sector but also among public-sector employees," he said.

The economy was moving into moderate but sustainable growth after years of double-digit expansion, said Mr Hunt.

But despite significant tightening in the public finances, he said typical post-boom characteristics such as job and income loss and deteriorating credit quality were not largely present.

The focus of fiscal management should shift to control of public expenditure.

Mr Hunt said: "Prudent management of the national finances must mean that broad budgetary balance be targeted over the course of the economic (and electoral!) cycles."

He added: "While we are expecting spending growth to moderate sharply now that we are in a post-election environment, Government consumption is still forecast to increase by 6.5 per cent in real terms. This will be sufficient to contribute 0.8 per cent to GDP growth in real terms."

While external sectors had outperformed expectations, slow momentum in the US and euro zone meant the environment for inward investment was constrained. Goodbody said domestic inflation remained excessive, forecasting an average rate for the year of 4.3 per cent.

This is marginally below the latest Department of Finance forecast, which said prices would rise this year by 4.5 per cent. "Consumers are becoming increasingly price sensitive and more discerning in their spending decisions," said Mr Hunt.

Goodbody trimmed its GDP and gross national product (GNP) projections by half a percentage point but said the transition to more moderate growth was "largely devoid" of stresses and strains. It forecast GNP would grow 4.7 per cent this year, contrasting with the Government's projection of 3 per cent.