Economy back on track, says Goodbody

Ireland's economy is back on track although the failure of house prices to moderate leaves open the risk of a crash, Goodbody Stockbrokers said yesterday.

In a review of the economy released on the day the Minister for Finance Mr McCreevy published the Government's spending Estimates for 2004, the broker says Ireland's "soft landing" is now a reality.

Economists Mr Colin Hunt and Mr Dermot O'Leary say GNP growth is on course to bounce back to 4 per cent next year.

However, they say the failure of the housing market to adjust to the slowing economy in recent years continues to cause concern. The most recent data point to an annual rise in prices of 13.8 per cent in the year to September.

"Going forward, we believe that house price increases in the 5 per cent to 7 per cent area are justifiable," the authors state. "A failure of the housing market to catch up with the \ reality increases the risks of a disorderly correction to property values at some point with obvious and negative consequences for economic activity."

However, they are more upbeat on the labour market. The failure of unemployment to climb above 5 per cent this year has been a "welcome surprise".

"The resilience of the Irish labour market through the economic downturn since the start of 2001 is quite impressive in an international context," the report states. It points out that Ireland has continued to create jobs year-on-year, a feat its main trading partners have struggled to match.

Inflation should average 3 per cent next year, Goodbody's says, despite a return of consumer confidence.

"Wage and fiscal expectations seem to have adapted to the changed growth environment and pose a significantly reduced threat to medium-term stability," the report adds.