The International Monetary Fund has warned that Ireland's economy is forecast to slow sharply until the end of 2008 owing to recent global markets chaos and a cooling housing market.
The economy also faces inflationary pressures amid rising Government spending, according to an annual IMF report.
The IMF predicted that gross national product (GNP) growth would slow from 6.5% in 2006 to 4.3% this year, followed by 3.2% in 2008. GNP strips out the profits of foreign multinationals located in the country.
The IMF said the other main measurement for growth, gross domestic product (GDP), was forecast to slow from 5.7% last year to 4.8% in 2007 before dropping to 3.5% in 2008.
'Given the Irish economy's strong fundamentals and the authorities' commitment to sound policies, [IMF] directors expected economic growth to remain robust over the medium term,' the report read.
But it warned that there were risks - including inflationary pressures, declining competitiveness and a widening current account deficit - which would need 'careful attention'. The report urged the Government to curb current spending growth and improve the quality of spending.
The IMF also said the banking system was sound, with low bad debts, and tests suggested that the system could cope with a range of shocks 'even in the face of large exposures to the property market'.
But it warned that vulnerabilities in the financial sector, due to high household and rising interest rates, needed continued vigilance by the authorities.
