Friends First economist Jim Power has said strong growth in tax revenue and strict control over spending will put the new Finance Minister in a very strong position going into December's Budget.

Speaking at the launch of his quarterly economic outlook, the economist said this would facilitate full indexation of tax bands, possible tax cuts and increased spending in 'politically sensitive' areas.

But Power warned that the threat of what he called a 'populist reaction' by Government to its recent poor electoral performance was the biggest risk facing the Irish economy.

He said sharply increased spending would be a 'major policy mistake'.

The economist said the signs for the domestic economy were positive, with business confidence recovering, though consumers were still cautious. He is predicting GNP growth of 4% for this year.

Power also sees house prices rising by 10%, with housing completions reaching 72,000.