The ESRI said today that the country's rapid economic growth was set to continue in 2001 but warned the Government that an expansionary budget would endanger the economy.
In its latest quarterly report published today, Ireland's leading think tank forecast that gross domestic product growth would be 9.9% in 2000 and remain a a strong 7.3% in 2001.
"The prospects for 2001 remain favourable, despite the significant rise in interest rates that has occurred during 2000 and even allowing for some appreciation in the euro reflecting its fundamental value," the report maintained. Headline inflation here is running at 16 year highs of 6.8%, well above the European average.
The ESRI revised upwards its forecast for consumer price inflation in 2001, predicting a rate of 4.4% and said inflation for 2000 would average 5.6%. The upward revision for 2001 was based on projected wage growth of over 10% next year. It added that pressure for higher wages was likely to fuel inflationary fires.
The think tank also issued a warning to the Government before Wednesday's budget. It said that a tax-cutting stance may give rise to problems in the future and added that an overly expansionary budget would be inappropriate for the economy at this time.
"Our recommendation for the budget remains that consideration be give to deferred compensation measures rather than direct tax cuts," the report stated.
