The economy will continue to grow strongly in 2005, but not as strongly as recently forecast by the ESRI, according to financial services group Friends First.
The group's quarterly economic outlook, prepared by economist Jim Power, predicts that Ireland's gross domestic product (GDP) will grow by 5.5 per cent during 2005, half a per cent lower than the ESRI's forecast. GDP is the value of goods and services produced within the economy.
The difference, although small, reflects a less optimistic view of future consumer demand, said Mr Power.
"The ESRI sees consumption growth at one per cent higher, but with consumer debt levels and the cost of living increasing, we feel the consumer will be more cautious in the future," he said.
Commenting on the investment market, Mr Power said that compared to property, the outlook for equity investment was supported by strong corporate earnings and dividends growth. He said he saw no prospect of a crash in the property market and that house prices were "close to fair value".
However, he suggested that there would be cause for concern in the event of a return to double-digit growth in house prices.
This might materialise through aincrease in demand driven by money coming from Special Savings Incentive Accounts (SSIAs) in 2006 and 2007, or by an ECB interest rate cut.
Mr Power underlined the importance of activity in the retail and construction sectors as driving growth in the short term and pointed to longer-term challenges, including a decline in the manufacturing sector.
"Long-term growth will depend upon improved competitiveness and productivity. The recommendations of the Enterprise Strategy Group need to be delivered."
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