Goodbody Stockbrokers has forecast that the Irish stock market will rise by 20 per cent next year, with the ISEQ Overall Index reaching 5,500 by the end of 1999.

Goodbody analyst Mr Liam Igoe said that this forecast is based on an expectation that major international markets will rise by between 8 and 12 per cent, driven by low interest rates and strong fund inflows.

"The Irish market will outperform international markets, as we expect its earnings per share growth to be 5 per cent higher than its peers. The booming economy and rapidly falling corporate tax rates virtually guarantees this forecast EPS growth, while the ratings of most stocks are on comparatively low price earnings ratios, thanks to the autumn fall in share prices," says the Goodbody report.

Goodbody believes that the outlook for the leading stocks, AIB, Bank of Ireland, Elan and CRH, is good and also favours second-line stocks including Waterford Wedgwood, Viridian, Smurfit, Fyffes and Kerry. Smaller stocks recommended by the broker include Adare, Barlo, Boxmore, Green, Heiton, Iona, IWP and Kingspan.

On the impact of the euro on the Irish market, Goodbody believes that about £4.4 billion worth of stock - or about 10 per cent of the Irish market - will change hands, as Irish fund managers restructure their portfolios to take account of the euro. "We conclude that there will be restructuring of Irish portfolios, this will be counterbalanced by strong overseas demand," says Goodbody.

On the economy, it expects gross national product to expand by five per cent in 1999, with strong domestic consumption offsetting the impact of weaker global demand. It expects growth rates to moderate over the coming years, but a combination of low interest rates, lower corporation tax, sensible fiscal policies and high labour force growth "should allow Ireland's trend growth rate to settle above four per cent over the medium term."