The Central Bank has predicted that the economy will grow at a rate of about 5.5% this year, which is only slightly slower than the growth recorded for last year.
In the bank's first quarterly bulletin of 2007, which was published today, it said that growth will be driven by strong consumer expenditure on the back of the encashment of SSIA savings accounts. The forecast is for about 71,000 net new jobs to be created in the economy.
However the report warned that inflation is an increasing risk to Ireland's export competitiveness. It said that price levels in Ireland are already the highest in the euro area and that any further inflation above these levels will put further pressure on the country's competitiveness.
The report also said that private sector borrowing in Ireland is now higher than in any other European country when measured against economic output. It said that on average personal credit now amounts to typically one and a half times personal disposable income.
On housing, the bank welcomed the easing in price growth since last summer. The bank also pointed to a 'very large gap' between the cost of building a house and the sale price, saying this indicated that strong demand had been the main factor behind house price growth in recent years.
It said affordability was increasingly becoming an issue for first-time buyers, whose share of new mortgage lending has been declining.
The bank also expressed concern about reports that mortgage lender EBS has dropped its two percentage point 'stress test' recommended by the Financial Regulator. This is aimed at ensuring that borrowers could cope with repayments if interest rates moved up by two percentage points.
