The Central Bank has forecast GDP growth of 4% this year, but says this could improve to 4.75% next year. The 2002 figure is slightly higher than in its summer bulletin, but the 2003 estimate is a percentage point lower.
In its autumn quarterly bulletin, the bank said it saw a 'high degree of uncertainty', particularly in the global economy, next year. But it added that it was reasonable to expect some degree of improvement.
Referring to the current weakness in the euro zone and US, it said an increase in export demand was unlikely in the short-term, while foreign direct investment was likely to be hit by the sharp decline in stock markets and worries about corporate profits.
The bank said Ireland's relatively high inflation rate must also be having 'some negative influence' on inward investment.
It said the inflation problem was firmly rooted in the sheltered service sector of the economy. This, the bank said, would inevitably result in a more difficult climate for employment growth. The bank called for greater competition and the removal of remaining restrictive practices and barriers to entry in some sectors.
The Central Bank also warned that pay awards in Ireland have been running at three times the euro zone average of 2.5% and that national pay negotiations would have to take the changed economic climate into account.
The bank's head of economic research, Tom O'Connell, said that the benchmarking pay awards for public servants might mean that tax revenues will have to be raised or Government spending cut or both to pay for the awards.
The bank said the prospects for employment growth in the second half of this year were not very favourable. It forecast an average unemployment rate of 4.5% this year, rising to 5% in 2003.
