Bank expects 'soft landing' for property

House price growth has eased to a level "more consistent with stability in the market", the Central Bank said today at the launch of its annual report.

Central Bank Governor John Hurley said this morning that housing completions appeared to have reached a peak last year, and that a "soft landing" remained the most likely scenario for the housing market.

"Looking forward, it is important to recall that the major underlying factors supporting the demand for housing are employment growth, increases in incomes, demographics and social changes."

"The prospects for these key factors remain favourable, even allowing for some moderation in the growth rate of the economy, and we continue to believe that the most likely scenario is a soft landing for the housing market," he said.

Mortgage lending growth has also eased from a peak of over 28 per cent in March 2006 to 20 per cent in May.

However, he cautioned that a "sharper than expected" slowing in the construction sector remained one of the main risk factors, coupled with an economic downturn affecting employment and incomes.

The Bank also warned that public sector wages must not be allowed to create inflationary pressures and should reflect the "low inflation environment" of the euro area.

Central Bank Governor John Hurley said this morning that the economic performance was positive and that an annual growth rate of 5 per cent was forecast for this year.

Looking forward, Mr Hurley said economic growth would moderate in 2008 on the back of slowing consumer spending and would fall to around 4 per cent.

"This level of growth remains favourable by comparison with other economies with broadly similar levels of incomes", he said.

The widening of the current account deficit to almost 5 per cent of GNP last year showed the need to rebalance growth, and in particular a recovery in export growth, he said.

The bank also noted that there has been a welcome deceleration in the rate of private sector credit growth, although it remains at high levels.

The rate of growth has fallen from 30 per cent in June of last year to just under 21 per cent.

Looking at external factors the Central Bank Governor said the most obvious risks to the economy are exchange rate movements and oil price volatility.

"There is still the risk that there could be a sharp depreciation of the dollar against the euro as part of a correction mechanism for persistent global current account imbalances."

While saying this risk is "impossible to quantify", Mr Hurley said it would be "complacent to rule out the possibility".

The openness of the Irish economy is particularly exposed to oil price volatility because of the country's dependence on imported oil.