The latest Economic Review and Outlook from the Department of Finance contains few surprises. As expected, it points to further strong growth in both output and employment this year and inevitably sounds strong warnings about inflation and wage pressures.

Given the current environment, it could do little else. But according to Mr Jim Power, chief economist at Bank of Ireland, its predictions on inflation may again err on the low side and it may not fall back as the Department would wish.

According to the forecasts, inflation will average about 2.75 per cent this year, at the low end of the Central Bank's prediction. Inflation will, according to the Department, exceed 3 per cent later this year before "moderating significantly" in 1999.

This is in line with the predictions of most commentators based on the view that the weakening pound last year is the cause of most inflation.

However, as the Department points out, it is also the result of the continuation of very strong growth in domestic demand and will fall back "provided" the pickup does not feed through to domestic price or pay levels or results in retailers increasing margins on sales. That may prove to be a rather large "provided".

The Department also echoes the mantra from Brussels that fiscal and spending policy must have a role in countering inflationary pressures. It repeats Mr McCreevy's stated intention to use the estimated £700 million surplus this year to pay off national debt capital and to frame the 1999 Budget with a "primary objective" of maintaining low inflation.

"Fiscal policy will have to play a greater role in this respect in the changed conditions of EMU where monetary policy instruments, (such as interest rates and exchange rates) will no longer be available," it notes.

However, there were also firm markers on wage inflation, where the Department of Finance is traditionally in battle with the Taoiseach's office in terms of settling wage disputes. In a strongly worded statement, it states that wage inflation "must be avoided".

"Local bargaining in the public service must comply with the terms of the national agreements to avoid adding excessively to the public service pay bill."

In line with what the Taoiseach and other ministers have stated recently, it confirms that tax cuts will be aimed at increasing incentives to take up work and widening bands and allowances. Corporation tax cuts will also be delivered. The Department is still not outlining what measures it proposes to take to "claw back" some of the proceeds from the businesses which will benefit as a result. But it is thought to be particularly concerned that the financial institutions and supermarkets, for example, should reap too significant a windfall from a measure primarily aimed at benefiting the multinational sector.

The outlook also focuses on the medium term. Ireland cannot plan for the future on the basis of an indefinite continuation of the existing level of EU funding, it states.

As a result, it warns that the public finances must be "sufficiently robust" to be able to shoulder the cost of growing infrastructural needs. The Department is anxious to build a sufficient surplus to leave room for spending even when the economy turns down, without breaching the single currency's 3 per cent deficit criteria.

Most of the emphasis will be on the infrastructure needed by enterprises. And in what may be a precursor for a large capital spending programme in the Budget, it states that investment is needed to help to close the remaining infrastructural deficit relative to our more developed EU partners.