Central Bank issues cautious report on economic growth
The Central Bank warned today that the economy may not be performing as strongly as business chiefs, economists and financial experts may have hoped.
In its fourth Quarterly Bulletin for 2005, it noted the broad picture was generally good even in the face of a high degree of uncertainty and risks surrounding the international economy.
Gross National Product, the value of goods and services produced in the State, would hit 4.5% and growth is expected to continue at a broadly similar pace next year, the report said.
This forecast is well below figures suggested by business federation IBEC, leading think-tank the Economic and Social Research Institute and the Government’s own predictions. All of whom suggested growth would be around the 5% mark.
The bulletin noted that while the economy was steady there were some of areas of concern.
Oil prices had been volatile and at a high level for some time while the sharp depreciation of the dollar against the euro could damage our competitiveness.
Inflation is forecast to average around 2.25% this year rising slightly to 2.5% in 2006. The Bank noted reasonably low inflation was achieved despite sharply rising oil prices, strong employment growth and some pick-up in private consumption growth.
“Although the Irish economy is operating in a low inflation environment at present, the need to ensure that domestic inflationary or cost pressures do not re-emerge to threaten the maintenance of competitiveness is very important,” the report said.
And with a new round of social partnership talks on the horizon the Bank warned of the need to control salaries.
“Recognition of this must be reflected in price and wage setting,” it said. “It is also important that future pay developments take account of productivity trends and of the low inflation environment generally in the euro area.”
The Central Bank offered finance minister Brian Cowen some advice ahead of his next Budget suggesting prudent management of State finances and cautious policies.
House prices have eased gradually, the review noted. But it said some evidence showed the moderation was not as great as had been anticipated.
