The threat posed by a lack of adequate private sector pension provision and increased competition in export markets will be among the major challenges facing the Irish economy in the medium term.
This is according to the latest Quarterly Economic Outlook from Friends First, published today.
Friends First's economist Jim Power says the Government must focus on developing a proper migration policy and develop a strategy to counteract the threat to Ireland's status as a major recipient of Foreign Direct Investment.
Mr Power says that pension covers remains a crucial issue for the future well being of the economy here. He says that coverage is too low and with the population set to age significantly over the coming decades, he warns that it is imperative that pension provision is increased to avoid the new species of 'the retiring poor'.
'Pension coverage will have to move up the political agenda as a matter of extreme urgency,' the economist urges.
On the economy, Mr Power says that 2004 experienced a very strong performance and early indications suggest that the positive momentum has carried over to 2005. He predicts that the Irish economy should deliver GDP growth of around 5.4% and GNP growth of around 4.9% this year.
The economist says that total employment should increase by at least 50,000 this year, equivalent to a growth rate of around 2.7%. The unemployment rate also looks set to reach 4% later this year - the lowest in the euro zone.
He predicts that the strong jobs market coupled with higher growth in wages and last December's 'generous' Budget will boost consumer spending power during the year.
However, he warns that the economy is once again very close to full employment and labour shortages are again starting to emerge. He says that to ensure that the economy continues to develop, a proper migration policy is required with a focus on the skill requirements of Irish companies.
'With Ireland's status as a major recipient of FDI now under threat from the EU Commission and from the emerging competition, it is essential that Government policy is increasingly directed towards nurturing a vibrant indigenous exporting sector,' Mr Power said.
'To achieve this, the Government must concentrate on reforming the way in which public services are delivered. Education and training must be enhanced to ensure that high value added activities can be sustained in the economy,' he added.
On the housing market, Mr Power says that the fundamentals driving the industry remain very strong but that it continues to move towards an equilibrium. This is already leading to a moderation in house price inflation and Friends First is predicting a growth rate of 6% in 2005 after a rate of 10% last year.
'The market is on the way to a soft landing, and despite prognostications to the contrary, is no closer to a sharp setback today than five years ago,' he adds.
He also predicts that the low interest rate environment looks set to persist for the foreseeable future, but he notes that this is due to continued economic weakness in the euro zone rather than economic strength.
