The International Monetary Fund has hailed the success of the Irish economy and predicted that its "spectacular" performance can be sustained through minimal further tax cuts and restraint on day-to-day government spending.
The positive assessment, in a report published by the Washington-based monetary organisation yesterday, coincided with new export figures from the Central Statistics Office suggesting that economic growth this year could be much higher than official forecasts. Exports to non-EU countries in the six months to June increased by 44 per cent.
However, the report, which was welcomed by the Minister for Finance, Mr McCreevy, also warned that the strains of growth were becoming more pronounced, including accelerating inflation, labour shortages and rapidly rising property prices which, it warned, could be "abruptly reversed".
It predicted that inflation would decline later in the year as the effects of higher fuel prices and tobacco tax hike began to fade. Overheating in a monetary union, it added, need not be resolved in a "dramatic fashion".
It said the adverse effects of higher wage and price inflation were outweighed by productivity growth and the weakness of the euro, but it warned that inflation would strain the national wage agreement, with house prices adding to that pressure.
"The social consensus underlying the wage agreement could erode undermining the stability that has been central to Ireland's economic success," it cautioned.
The IMF report, drawn up following discussions with the Department of Finance, the Central Bank and the Economic and Social Research Institute in May, says the Government should adhere strictly to wage settlements agreed as part of the Programme for Prosperity and Fairness.
It recommends that tax cuts should be aimed at encouraging greater labour force participation. In a potentially controversial recommendation, it says: "Further expansion of the new home carers' allowance does not seem desirable, as it would undermine the incentive effects of individualistaion."
Consumer confidence remains near record highs as does business confidence and the IMF is estimating that gross national product will rise by 8 per cent in 2000 before falling back to 6 per cent in 2001.
The report also calls for greater competition, particularly in pubs and taxis, which would counteract upward pressure on services sector inflation.
The full text of the IMF report on Ireland can be found on The Irish Times website: www.ireland.com