The Irish economy will grow at a steady rate of 5 per cent in the medium term, but more domestic competition is needed to counter mounting inflation, according to the OECD.
In its latest global economic outlook published today, the Paris-based think tank said the higher consumer spending fuelled by higher incomes and sustained government expenditure will be the engines of growth in Ireland.
The OECD welcomed the proposal to repeal the Groceries Order and called for more competition in sheltered sectors starting with the professions and network industries.
"With strong activity exerting inflationary pressures, core inflation is projected to creep up over the projection period," the OECD report warns.
As a result the report calls for more intense domestic competition to provide a "countervailing force" to inflationary pressures in the short-term and boost growth prospects in the long term.
The OECD also cautioned that exporters will facing tougher conditions due to mounting cost pressures. "Net exports are projected to taper off as rising unit labour costs hold back exports," the report states.
The OECD also recommended that the Government should keep a tight rein on spending to contain inflationary pressures and provide a buffer against any possible shocks from the housing market or volatile exchange rates.