Ireland's housing boom is over, a leading world think tank predicted yesterday. The Organisation for Economic Co-operation and Development (OECD) also predicts that inflation will rise next year and calls for the Government to slow the rate of public spending growth and to introduce more competition in the economy in order to lower prices and boost competitiveness. Marc Coleman, Economics Editor, reports.
The Paris-based organisation predicts in its latest Economic Review that Ireland's economic growth rate, while remaining good by international standards, will fall significantly next year.
"The housing boom is over. The rate of growth of Gross Domestic Product (GDP) is set to fall to 5.5 per cent in 2007 and 4.1 per cent in 2008 as consumption weakens and housing investment falls," the review states.
Last year Ireland's GDP - the annual output of goods and services - grew by 6 per cent, one of the highest rates in the 30-member club of leading economies.
Despite slowing down, Ireland's growth rates will continue to outperform its peers. OECD economic growth is expected to average 2.6 per cent this year and 2.7 per cent next year.
Inflation will pick up again in 2008 after easing this year, according to the outlook. Its forecast for the Harmonised Index of Consumer Prices - a measure favoured by the OECD and EU because of its comparability between different countries - says Ireland's inflation will rise from 2.4 per cent to 2.8 per cent next year.
Growth in imports is expected to continue to outpace growth in exports as the economy becomes less competitive relative to its peers.
The OECD called on the incoming government to reduce the rate of public spending growth, which it says is contributing to inflation. "Fiscal policy should avoid excessive increases in spending that would further add to demand," the study states.
"Regulatory reforms, particularly in network industries such as electricity and natural gas supply, also have the potential to lower prices."
However, it also predicts that Ireland's unemployment rate will remain low, and actually fall, from 4.4 per cent this year to 4.3 per cent next year.
The report says that economic growth will strengthen modestly in the euro zone, from 2.1 per cent this year to 2.2 per cent next year, and that Japan will next year emerge from recession.
The review's publication yesterday coincided with the publication of data by the Central Bank and Financial Services Authority of Ireland showing that borrowing for construction and real estate activity slowed significantly in the 12 months to last March.
However, the quarterly Central Bank study indicates that Ireland now has the most indebted private sector in the euro zone.