The Economic and Social Research Institute has predicted that the economy will continue to perform very well for the foreseeable future despite concerns over the sharp rise in oil prices and continued economic weakness in Europe.
In its latest Quarterly Economic Commentary, the institute says the strong house building sector is helping and that overall Irish consumers are currently spending €100m more a week in the economy than last year.
The institute warns, however, that the euro will get stronger against the dollar and that this will make Irish businesses less competitive. The ESRI says we need more competition and more productivity in the services sector to make up for this loss in competitiveness.
The think-tank says employment prospects are strong with 52,000 new jobs expected this year, followed by another 42,000 next year.
The ESRI also sees no prospect of a rise in interest rates for at least another year. In the meantime its quite possible, according to the institute, that interest rates could actually be cut if economies like Germany, France, and Italy, do not buck up soon.
The report says the public finances are fundamentally sound and inflation should average 2.2% this year and 2.4% next year.
Economists at the institute have allowed for a host of negative influences in their analysis. They have built in a continuation of high oil prices, a loss of competitiveness because of a stronger euro, and a €1 billion bill for the Government over the nursing homes charges debacle.
The institute warns, however, that the house building boom is unsustainable and that this is a considerable risk for the economy in the medium term.
