Buoyancy is set to be restored in 2005 and the economic downturn is almost over, according to the latest analysis from the Economic and Social Research Institute.Una McCaffrey and Arthur Beesley report.
The organisation warns, however, that recovery could be seriously threatened if the Government fails to address competitiveness problems or eases off on infrastructural investment in the short term.
Such policy failure could cut living standards by 10 per cent by 2010, the authors of the ESRI's Medium-Term Review say.
A further substantial rise in the euro against the dollar and sterling could also derail recovery, according to the review, which will be published today.
The review's central forecast sees economic growth rising back towards 6 per cent towards the middle of the decade, before settling into sustainable annual expansion of about 3 per cent after 2010.
The recovery will, according to the ESRI's economists, be based on renewed health in the global economy which will help to stimulate demand for Irish goods.
This will result in a growth rate "well above the dreams of our EU neighbours" with any economic "underachievement" in the first half of the decade offset by above-potential expansion from 2005 on, the review concludes. The analysis foresees the restoration of full employment by 2010, with skilled services to fuel growth at the expense of the manufacturing sector.
The ESRI's economists also suggest that the public finances may regain the flexibility for taxation cuts and improvements in public services as the decade progresses.
ESRI research professor and editor of the review, Prof John FitzGerald, was cautious on the outlook yesterday, however, warning that the economy would be "choked" if the Government did not take action on declining competitiveness and the infrastructural deficit.
The review's central growth forecasts would be some 1.5 per cent lower each year if such policies were not addressed, he said.
Prof FitzGerald urged the Government to prioritise infrastructural funding over contributions to the National Pensions Reserve Fund, which is designed to pre-fund retirement provision over coming decades.NPRF contributions, which are set at 1 per cent of GNP each year, are likely to be funded through borrowing in 2003.
The ESRI believes that these contributions should be frozen until the State is provided with the infrastructure it needs.
When this investment is completed in 2015, the "spare" money that will subsequently become available to the Government should then be invested in the NPRF, according to the organisation's analysis.
The Opposition said the ESRI report was proof that Government policy had contributed to the economic slowdown.
The Fine Gael leader, Mr Enda Kenny, called on the Coalition to acknowledge that its policies were having a detrimental impact on the economy, while the Labour leader, Mr Pat Rabbitte, said the report was an indictment of the Coalition's economic incompetence.
"By overheating the economy during the boom and in the run-in to the last election, Fianna Fáil and the PDs pushed up costs and prices across the economy. This undermined our competitiveness, resulting in a slowdown in growth and the flood of job losses which we are now seeing," Mr Rabbitte said.
The Green finance spokesman, Mr Dan Boyle, said the report contained carefully crafted criticism of the Government, highlighting in particular its recommendations on the NPRF.