Economics:Regular readers of this column will be familiar with my view that the year 2000 represents a watershed in Ireland's recent economic history. In the first place, it marks the transition from the extraordinarily rapid growth rates of the 1990s to the more modest growth rates of the present decade., writes Jim O'Leary

In the second place, the composition of economic activity has differed markedly as between the years on either side of the millennium divide. In the earlier period, exports were the locomotive of growth. This, on the back of large inflows of foreign direct investment, especially from the US, and big gains in the cost competitiveness of Irish-based producers, was helped by favourable currency movements. In the more recent period, the growth of overall economic activity has been concentrated in domestic demand, principally consumer spending and construction activity. A key driver in this latter period has been the ultra-low level of interest rates while a critical facilitator of output growth has been the extent to which domestic labour supply has been augmented by immigration.

Most observers believe that the pace and pattern of economic activity evident through the post-2000 period will continue, at least in broad terms, in 2007. Overall GDP growth is expected to be in the range of 5 to 6 per cent, with domestic demand once again pulling the train, as maturing SSIAs boost consumer spending and construction activity remains underpinned by demographic trends. If the commentators are right, this year will conclude another highly successful seven-year period for the Irish economy, albeit one with a very different character to the seven-year period that immediately preceded it. What happens after that, in 2008 and beyond, will depend in large part on how the two growth drivers of the 2000-2007 period - interest rates and immigration - evolve.

As far as interest rates are concerned, the picture is relatively clear. The European Central Bank (ECB), having already raised rates by 1.5 percentage points over the past year, seems certain to sanction further increases in the year ahead. Quite how much further there is to go is a matter of debate. Another half percentage point would take the ECB's key rate to 4 per cent, which has the attraction, to forecasters at least, of being a nice round figure.

The roundness of the number is unlikely to be an influential criterion in Frankfurt, however. Instead, the ECB's judgment in relation to inflationary pressures will be the decisive factor. On this basis, it is not difficult to imagine the ECB raising rates to the same kind of level they reached at the top of the last tightening cycle in 2000, which was 4.75 per cent.

The least that can be said about the level of interest rates that is in prospect for a year's time, whether that be towards the top or the bottom of the 4 to 5 per cent range, is that it will be less supportive of domestic demand and activity in the property sector in particular, than the level of rates that has obtained on average since 2000. On a bad day, that is, accompanied by a decisive shift in sentiment in the housing market, further rate hikes could trigger a sharp fall in prices and output in the sector. On a fair day, the outcome might be something approaching a soft landing: house prices stabilising in real terms and output gently declining. One way or another, the current pace of activity in the property and construction sector would not be sustained.

What about immigration? Here the picture is nothing like as clear. Forecasting interest rates, movements which are mostly cyclical, is a matter of studying how central banks react to economic fluctuations. This is a well-worn path, and those who walk it are helped by the fact that the decisions of central banks have become increasingly predictable in recent years. Practised observers have a fair idea what a central bank will do if GDP grows by X per cent and the inflation rate is Y per cent, and that's true not only of "old" central banks like the Fed but also a "young" one like the ECB.

But migration is a different and much more complex matter, and this is especially true of migration to and from Ireland. Back in the 1980s, when there was net emigration from the country, population projections and, by extension, estimates of the economy's potential growth rate over the medium to long run, were based on the assumption that net migration would continue to be negative, and differed from each other mostly on the basis of how negative those net outflows of population would be. Then the prospect of net immigration was literally unimaginable. Now medium- and long-term forecasts for the economy are predicated on the assumption that large-scale net immigration will continue for many years into the future.

Given that immigration to this country is a recent and unfamiliar phenomenon, there is something disconcerting about this. What are the main factors that have drawn immigrants to Ireland and how do they stack up against each other? Has immigration been principally a function of conditions in immigrants' countries of origin or of conditions here? How influential is the existence of an established co-ethnic community (of Poles or Lithuanians, for example) likely to be in drawing future flows of immigrants from these countries? How fixed or footloose are immigrants likely to be in the face of a slowdown of economic activity and a contraction of employment opportunities here? To what extent can the answers to these questions be extracted from the body of knowledge that exists in relation to historical patterns of international migration?

These questions relate to a phenomenon that is central to the economy's longer-term prospects. Yet, the truth is that we don't have the answers to them. Indeed, the answers to some of them are essentially unknowable as of now. But that should not be an excuse for remaining in the dark. We need as much illumination as we can glean on these issues. In the meantime, medium-term economic forecasts should be treated with great care.

• Jim O'Leary lectures in economics at NUI-Maynooth. He can be contacted at jim.oleary@nuim.ie