The Irish economy experienced a soft landing rather than a crash after years of expansion, the Economic and Social Research Institute (ESRI) said today.
But the country's leading economics think tank warned unemployment will rise and public finances will deteriorate next year as the economy adjusts to slower growth.
In its quarterly economic commentary, the ESRI forecast the economy will grow by 4 per cent next year and 4.2 per cent in 2003, half that experienced in recent years, but just below what is considered its potential growth rate of 5 per cent.
Considering that the Irish economy suffered the bursting of the IT bubble, the foot-and-mouth outbreak and the global downturn following September 11th - in less than two years, a 4 per cent growth rate should be seen as a reasonable performance, the ESRI said.
But the ESRI warned that the delayed global recovery and political uncertainty in the Middle East may force these forecasts to be revised downwards. The Irish public must also temper its pay expectations in this context, the ESRI said.
Unemployment is expected to rise next year as the delayed recovery forces firms to lay off workers who were retained last year in the expectation that the downturn would be short-lived.
The ESRI estimates the General Government Balance will show a deficit of €1.2 billion this year and this will worsen to €3.7 billion by 2003. If benchmarking is fully implemented, this figure will swell to €4.2 billion.
The institute repeated its call on the Minister for Finance, Mr McCreevy, to adopt a neutral stance in next month's Budget to reflect the more austere economic climate and said he should avoid any tax changes until the mysterious hole in the Government's finances can be explained.