The Governor of the Central Bank has said he continues to believe that a "soft landing" in the housing market is the most likely scenario despite concerns about house prices and the rapid growth in mortgage lending.
In a speech to the Cork Chamber of Commerce this morning, Mr John Hurley said the possibility of a sharp decline in the dollar posed a real threat to the economy.
"The biggest risk is a disorderly unwinding of global imbalances, especially the twin deficits in the US," he said.
"If this were to occur, we could experience a rapid decline in the US dollar and a sharp euro appreciation, which could impinge on our competitiveness," he added.
The other main external risks cited were developments in energy markets and an uncertain global political situation.
Ireland has enjoyed some of the strongest growth rates in the euro area over the past decade but Mr Hurley said it would be unrealistic to expect the same kind of growth levels in future.
"The reason for this is that we have largely absorbed into employment those who in the past were either unable to find employment or were discouraged from seeking employment by apparently poor job prospects," he said.
However, he saw some scope for raising the employment rate and said this could grow 2 to 2.5 per cent in the coming years. Ireland's unemployment rate is running at about 4.5 per cent - a far cry from rates of around 15-16 per cent in the early 1990s.
Mr Hurley said it was important to continue to keep a check on inflation since price levels in Ireland were high relative to most European countries.
"If we remain conscious of this and continue with the generally sound policies that have delivered such good results over the past decade, there is no reason why we should not be optimistic about our future economic prospects."
Mr Hurley said administrative red tape should be cut to support business start-ups and argued the country's dynamic economy would continue to flourish if new enterprises were supported, not restricted.
"We must continue to tailor our policies to promote growth and employment. It is also important that we are realistic in our expectations, whether in regard to incomes or what we expect to be delivered by way of public services," he said.