The Government's formula of strong growth through low taxes and investment from abroad should provide growth of 7.75 per cent this year, the Organisation for Economic Co-operation and Development (OECD) said in a report today.
It also played down the prospect of the economy "overheating".
|
The report said Ireland had experienced 10 years of rapid growth and if some changes were made to the favourable economic landscape "the standard of living could continue to improve at an impressive pace in the coming years".
Although the OECD warned inflation was likely to remain above average for the 12-nation euro zone for some time it said a balanced current account reduced a risk of overheating.
|
|
The Minister for Finance, Mr McCreevy.
|
The OECD survey of the Irish economy contrasted with the view of the European Union council of finance ministers which censured Ireland's budgetary policies in February as inflationary.
Observers have noted the "Celtic Tiger" has generated inflation far above the upper target of 2.0 per cent for the euro zone set by the European Central Bank.
But the OECD took a generally reassuring line. It forecast growth of gross domestic product (GDP) would slow to 7.5 per cent this year and next from a "spectacular" figure of about 10.75 per cent in 2000. It noted: "Despite rising wages and prices, competitiveness actually improved due to extraordinary productivity growth."
But clouds on the horizon were seen in a slump in the US information, communication and technology sectors and pressure on infrastructure - "especially the road and the public transport systems".
The OECD said that although inflation was rising "with the current account roughly in balance it would not be appropriate to characterise the situation thus far as simply one of overheating".
Inflation is at 5.6 per cent according to figures released on May 11th was "more heavily influenced in Ireland than elswhere by the weakness of the euro", the report said.
The single currency has fallen in particular against the pound and dollar, currencies used by key Irish trading partners Britain and the United States.
The OECD urged the Government to restrain public spending despite "the difficulty in resisting public demands at a time of a sizeable budget surplus".
It said: "Fiscal policy should be oriented to maintaining a significant surplus for some time to come so as to smooth tax pressures by, for example, putting aside funding for future pension liabilities."
The OECD also encouraged the Government to develop areas other than Dublin and to increase "the density of urbanisation in Dublin itself" to relieve pressure on roads and public utilities.
Having attracted foreign investment and established tax rates that "compare well with those in the UK with which the Irish labour market is closely linked via immigration", officials should now refine policies to sustain the growth process, the report said.
"If this is done, the standard of living should continue to improve at an impressive pace in the coming years," it concluded.
AFP