The economy will continue to grow rapidly for the next 18 months as long as the Government does not "mess it up", according to an economist, Dr Terry Baker of the Economic and Social Research Institute. In the ESRI's latest Quarterly Economic Commentary, Dr Baker said there was no reason why the Irish economy could not sustain strong economic growth but has warned the Government to avoid damaging growth prospects by not implementing the Partnership 2000 tax commitments in full.
The main concern for the economy would be if the Government failed to honour its tax obligations fully under the agreement, he said. Any breakdown in this consensus would seriously damage Ireland's growth prospects, he added.
"It would be very worrying if the consensus framework were to break down. As long as the tax side is honoured I think Partnership 2000 will hold."
The positive report comes a week after a warning by the Minister for Finance, Mr McCreevy, that buoyant tax returns only meant that debt-servicing costs would be reduced. "The fact we have a good bonanza has a minimal bearing on the future and on future years," he said last Tuesday after the release of revenue returns for the first seven months.
It would not be financially prudent he said to speculate on the basis of given months' figures, but insisted that he would keep to the tax-cutting pledges in Partnership 2000 and the Programme for Government.
Maintaining the consensus approach to moderate pay claims was the "surest bulwark" against generalised inflationary pressures in the next two years, Dr Baker said.
The Government would have to err on the side of making sure that the parties to the agreement felt the tax obligations had been fully met, Dr Baker said.
In addition, the institute has cautioned the authorities against any premature revaluation of the pound within the ERM, ahead of entry into the single European currency. This could undermine the economy's long-term competitiveness, it states.
In an upbeat assessment, the ESRI forecasts the economy will rapidly expand again this year, growing by 7 per cent. This compares with the ESRI's 5.5 per cent forecast for GNP growth in its April commentary.
Although this is slightly below official annual average growth estimates of 7.5 per cent for the past three years, continuing economic growth should support the creation of more than 50,000 jobs in 1997. This is marginally higher than the average achieved in the previous three years, when the number of jobs created annually in the economy was around 46,000.
Surging growth will yield a substantial improvement in the public finances with the Exchequer Borrowing Requirement this year forecast to fall to about £100 million or 0.2 per cent of Gross National Product.
And while there will be some "inevitable turbulence" in the currency markets in the run-up to monetary union, the ESRI is not forecasting any sudden rises in interest rates in the short term.
Inflation will also remain relatively low, rising to 1.75 per cent by the end of the year largely due to the strength of sterling. Inflation last month was 1.2 per cent.
The ESRI has signalled a further rise in inflation next year to around 2.5 per cent, still well below the 4.4 per cent level Davy Stockbrokers forecast earlier this week.
The bullish projections are based on the continuation of the underlying factors that have supported Ireland's phenomenal economic growth in the past three years, it stated. "There is no reason why strong economic growth will not continue. The underlying factors should continue," Dr Baker said.
Meanwhile, in its annual economic report the European Commission has said that strong domestic demand and wage cost increases ahead of those in other countries whose currencies are linked to the deutschmark could lead to an increase in Irish inflation to 2.5 per cent next year.
The ESRI has also stressed that the Irish authorities must continue to base key decisions relating to management of the pound on the possible implications for the long-term competitiveness of the economy.
Meanwhile, there was an unexpectedly large rise in the British inflation rate with the 3.3 per cent figures for July coming in ahead of most forecasts.