Friends First economist Jim Power's latest economic outlook says the economy is too dependent on the buoyant housing market.
'There is no doubt that the economy is performing strongly, but this performance is over reliant on the housing market which is exerting an inordinate influence on the overall health of the Irish economy,' he warned.
The economist said a significant slowdown in housing would have a substantial effect on consumer confidence and would undermine the overall economy. He said the housing market was benefiting consumer spending, construction employment, the stock market and the public finances, and this made the economy vulnerable in the event of a downturn in the sector.
Power said economic growth would accelerate in 2006, with GDP expanding by 5.2% and GNP by 4.9%. He added that consumer spending was back at Celtic Tiger levels, driven by rising salaries, the prospect of maturing SSIA funds, the Government's expansionary budgetary policy and 'an incredible willingness to borrow'.
'Consumer spending is on fire and there is strong evidence of irrational exuberance,' said Power. He also warned that some people who had been tempted into the property market were not prepared for the prospect of higher interest rates.
The economist argued that there was a danger that complacency could set in. Power said policy makers needed to create a sustainable indigenous economy by investing in marketing, research and product innovation. Likening the economy to 'a bird flying on one wing', he said it could not grow indefinitely based on the housing market and the public sector.
