Ireland's economic outlook remains broadly favorable, but the country could be hurt by the global slowdown in the technology sector, according to the IMF.
"Given Ireland's openness and the importance of foreign direct investment in high technology, the deterioration in the global outlook - especially for the technology sector - poses considerable downside risks," the IMF said in its annual review of the Irish economy.
The IMF forecast Ireland's GDP growth to slow to 7 per cent in 2001 from 11.5 per cent in 2000. However, the slowdown should be cushioned by "easy monetary conditions, strong growth in disposable income and low unemployment" which should keep residential investment strong.
The IMF said that "wages and prices will have to respond flexibly to any new adverse external shocks" and the government should "remain alert to potential stresses in the financial system, although any possible stresses appear manageable at this stage."
The Minister for Finance Mr McCreevy welcomed the IMF’s findings. Mr McCreevy said the IMF’s analysis would contribute to the framing of policy responses for the future.
Wages are projected to grow by about 10 per cent this year. The IMF said that the recent acceleration in wages was largely "a catch-up" from earlier productivity gains. But if wages continue to exceed productivity growth, the country's competitiveness could decline and growth could slow over the medium term.
The Irish Government should aim for a neutral fiscal stance in 2002, with a recession remaining unlikely, the report added.
AFP