Economic growth will fall to 4 per cent next year, according to the latest forecasts from the Central Bank. The bank also expects that the economy will grow by only 5 per cent this year, compared with its earlier prediction of 5.75 per cent.
Tom O'Connell, assistant director-general and head of the bank's economic department, said that the economy's performance to date had been "pretty good".
Despite the expected fall in growth next year, he said, growth could recover to between 4.5 and 5 per cent after 2008 if productivity in the economy improved. He added, however, that the economy was facing "competitiveness and inflationary issues" and conceded that these needed to be dealt with if this growth potential was to be achieved.
Fianna Fáil's economic election programme, published last Monday, assumes that the economy will grow by 4.5 per cent annually, generating enough tax revenue to fund its election commitments.
The bank expects consumer spending and investment, the two mainstays of recent growth, to slow significantly next year.
From a rate of 7.5 per cent this year, consumer spending will slow to 4 per cent in 2008 as the effect of the SSIAs unwinds.
From a peak of 93,000 this year, the bank expects housing output to slow to 82,000 next year, slowing the rate of investment growth to 2.5 per cent, down from 4.25 per cent this year.
The rate of inflation, which rose to 5.1 per cent in March, is forecast to average 4.75 per cent this year before falling significantly to 2.75 per cent next year. Mr O'Connell said that even a modest increase in inflation relative to the euro zone was a matter of concern.
"It has to be recognised that we are starting from a position where our cost of living is high, very high, by euro area standards," he said.
He added that the National Development Plan should compensate for any decline in the construction sector caused by falling housing output. "There are signs now that housing output has reached its peak. That being said, infrastructure and non-residential construction should keep activity reasonably high."
Mr O'Connell also welcomed the recent slowdown in the rate of house price growth. "House prices have levelled off and that's certainly no bad thing," he said.