The Central Bank has predicted that the Irish economy will grow by 5.25% this year. In its Summer Bulletin, the Central Bank says that the prospects for the domestic economy remain broadly positive and the bank sees the economy growing by a similar rate in 2006.
However, the bank warned of risks to their projections. It says that a major euro appreciation can not be ruled out, while oil prices remain high and volatile.
At home, both the level of private sector credit - or consumer borrowing - and its growth rate remains very high, while the current levels of activity in the construction sector can not be sustained over the medium term.
On the euro, the Central Bank says that the depreciation of the euro exchange rate around the middle of the year has eased competitiveness pressures on exporters, but it warned that risks still remain.
'The US current account deficit remains persistently high and significant and sustained exchange rate movements as part of a correction mechanism can not be ruled out. Such movements would impose competitiveness strains on the exporting sectors,' it said.
On high oil prices, the bank said that while the economy's exposure to the direct impact of oil price rises has declined over time, it can not avoid the indirect effects that would arise from slower growth in the country's trading partners.
The bulletin says that consumer spending grew solidly, but not dramatically, last year. It adds that purchases of new homes, while remaining at a very high level, are unlikely to contribute significantly to growth this year. It points out that house price inflation has also eased - reflecting the increase in housing supply in recent months.
However, the bank predicts that growth in consumer spending is likely to pick up, reflecting further increases in disposable incomes.
'Recorded levels of consumer confidence are improving, but in an uneven manner, suggesting that households are unlikely to boost spending very significantly in the short-term,' the Central Bank says.
The bank says that employment growth is likely to be very strong again this year, however it adds that the contribution from the construction industry may ease. Services sector growth should also support the continuing increase in employment.
