Central Bank Governor John Hurley has said the outlook for the Irish economy is still favourable, despite the risks associated with currency markets, oil prices and a slowdown in the housing sector.

Speaking at the publication of the bank's annual report, he forecast that the economy would grow by around 5% this year, easing to around 4% in 2008.

On the housing market, Mr Hurley said the most likely scenario was a 'soft landing', adding that recent house price figures were 'more consistent with stability'. He also welcomed a recent slowing in the rate of borrowing growth.

The Governor said the main risks to the economy at home were linked to the house building sector and a loss of competitiveness. He said that although a gradual decline in housing output was the most likely outcome, a sharper than expected fall could not be ruled out.

Mr Hurley also called for measures to reverse the deterioration in competitiveness, including infrastructure investment, encouraging research and development and promoting more competition.

He also said pay rises in the 'more sheltered sections of the economy' should not put pressure on wages and costs elsewhere.

In its report, the Central Bank recorded a profit of €110.2m, with surplus income of €98.5m paid to the Exchequer. A further €39.5m from a coin issue was also paid to the Government.