IBEC has said it is expecting economic growth to recover this year but is concerned about a wage/price spiral and the strength of Government spending.

The employers' lobby group said it expected modest GDP growth of just under 4 per cent this year, which implies reasonably strong growth in the second half of the year.

But it said it was concerned by the growth in wage costs over the past two years and the large rise in Government spending, which was up by 22 per cent last year.

IBEC said unit wage costs were rising relative to the Republic's main competitors and its well-positioned competitive placing was beginning to slip.

"This will impact on jobs both because business is lost and employers seek more efficiencies through investing in capital at the loss of labour," Mr David Croughan, chief economist at IBEC, said.

IBEC also said it was urgent that control of Government spending be addressed. "Some control will have to be put in place if we are to avoid moving into a serious deficit position," he added.

On the growth front, it expected investment to fall by 2.5 per cent this year compared with an average growth rate of 14 per cent over the previous five years.

The employers' organisation also believed consumer spending, after growing by 5 per cent last year, would slow to 4 per cent this year, while exports should grow by 5 per cent, down from 7.8 per cent in 2001.

IBEC expected employment to increase by 2 per cent this year but noted that unemployment may still rise to 5 per cent as labour force growth again exceeded employment growth.

On inflation, IBEC expected to see it reduce nearer to European Union levels, with a forecast rate of 2.6 per cent next year after an average of 3.8 per cent this year.

Next year, it predicted a return to a GDP growth rate of around 5.5 per cent, more in line with the economy's potential.

"Downside risks could be the failure of a resurgence in US foreign direct investment and some threat from a loss of competitiveness if wage costs fail to moderate in combination with some limited appreciation of the currency," IBEC said.

Meanwhile, figures released yesterday showed that initial estimates indicated industrial production in the three months ended January was 5.1 per cent higher than in the previous three-month period.

The year-on-year increase for January was 14.3 per cent, according to the Central Statistics Office.