"Don't worry, be happy," the song goes, but it's not a tune they live by down at the Central Bank. The uplift in the economy means that its forecasters have upgraded their predictions for 2004 and expect GNP growth to clip along at a healthy 5 per cent next year.

However, no sooner are the forecasts mentioned then the bank adds that the 2005 predictions "are subject to significant downside risks". In other words, it could all go wrong yet.

The outlook for the Republic is intimately connected with international growth prospects and the world picture is particularly uncertain.

Oil prices are the most obvious concern. If they stay where they are, the bank warned, then it could knock 0.5 of a percentage point off growth for next year - and even this could be optimistic.

However, another risk has moved into view over the past few weeks. The US dollar has eased significantly in recent weeks and the euro is now hovering around its highest level for eight months.

With the US current account and budget deficits continuing to head upwards, the US dollar may be left "vulnerable to sharp adjustment, with consequent adverse implications for our international competitiveness".

In other words, a sharp dollar fall could hit our exporters. Euro-zone markets look sluggish and recovery is not guaranteed.

What can domestic policy do to guard against these risks? The inflation rate - expected to be 2.25 per cent this year and 3 per cent next year - must not be allowed climb, the bank says. And with the economy moving at close to full capacity, this is an argument for a cautious Budget.

Having boosted inflation at the peak of the last boom through a pre-election tax cut and spending spree, the coalition Government is being told not to make the same mistake twice.