Ireland's output is projected to expand at a steady 5% in 2006 and 2007, driven by robust income growth and higher Government spending, the OECD said today in its twice yearly report.
However, the Paris-based group noted that net exports were expected to taper off as rising labour costs weighed on competitiveness and core inflation was projected to creep up under pressure from strong activity in the economy.
More intense competition was needed to counter short-term inflationary pressures and boost long-term growth, it said.
A key risk to the outlook for the Irish economy was the possibility of an 'abrupt adjustment' to residential construction activity as the rate of price inflation in the country's booming property market cooled off, it warned. It added that the macroeconomic impact would be greater if house prices were to fall.
The OECD added that the external side of the Irish economy was also exposed to downside risks such as marked slowdown in the UK or a bout of euro appreciation against the dollar which would hurt exports.
