IRELAND'S annual real growth is expected to remain around 6.5 per cent of GDP in 1997 and 1998, the OECD said yesterday.
"The pace of economic activity appears to have moderated to between 6 to 7 per cent in the course of 1996 and is projected to continue in that range until 1998," the Organisation for Economic Co-operation and Development said in a semi-annual economic outlook.
It said the strong performance so far reflected a rapid rise in exports, led by the high-technology sector, and in domestic demand, particularly fixed investment.
Ireland's recent rise in short-term interest rates affected household borrowing costs and may dampen personal consumption in 1997, the OECD said.
But, in 1998, the prospect of EMU membership may lead to significant declines in interest rates and a pick-up in output growth, it added.
"With Ireland aiming to participate in European Monetary Union(EMU) in 1999, the large short-term interest rate differential (between Irish and German rates) is projected to unwind, while the gap in long-term rates is also likely to continue narrowing," the OECD said.
It said the rise in rates earlier this year, reflecting concern over strong credit growth and rising house prices, widened the short-term differential with Germany to 270 basis points.
In contrast, long-term rates had fallen since March, reducing the gap with Germany to 90 from 170 basis points.
The ECD said Ireland's inflation rate was likely to remain around 2 per cent as a result of a firm exchange rate and continued wage restraint despite employment gains.
It said the main risk to continued buoyant growth in Ireland was inflationary pressures as the unemployment rate had declined to a level not seen since the early 1980s.