The OECD has predicted that the Irish economy will continue to grow steadily at a rate of around 5% a year.
In its latest twice-yearly economic survey, the organisation forecasts that gross domestic product will expand by 5.3% this year and 5% next year, boosted by rapid growth in domestic demand as incomes grow strongly.
The Paris-based think tank says inflation should remain muted, moving up to 2.7% next year from 2.5% this year, but it warns that increasing labour costs are affecting competitiveness.
It says further competition in utilities, retail and professional services would help to curb the risk of renewed wage and price inflation.
The OECD's World Economic Outlook says growth in major industrialised countries is set to flag this year, dragged down by continued sluggishness in the euro zone.
It predicted that growth in its 30 member nations would slip to 2.6% in 2005, after 3.4% in 2004, before
edging up to 2.8% next year.
'The smooth scenario where the recovery was expected to spread more evenly across the OECD has not materialized,' chief economist Jean-Philippe Cotis said.
The danger, according to the study, is that sharply divergent growth prospects between Europe and Asia coupled with huge US current account and budget deficits could spark an abrupt plunge in the dollar.
That would dampen recoveries in the euro zone and Japan, as exports suffered, and could lead to a sharp jump in US interest rates that would act as a further drag on worldwide economic output.
'While the imbalances may well unwind relatively smoothly,' according to the OECD, 'serious turbulences cannot be ruled out'.
With growth in the euro zone projected to decline to 1.2% this year from 1.8% in 2004, the OECD said a lowering in key interest rates by the European Central Bank would be warranted.
The OECD said US economic growth should be maintained in the second half of this year, with gross domestic product expanding 3.6% for all of 2005 after 4.4% in 2004. But the US economy is nonetheless threatened by an expanding current account deficit, which is set to come to 6.4% of GDP this year.
