Housing affordability and the accommodation crisis pose a greater threat to the economy than does inflation, the Small Firms' Association (SFA) has said in its winter economic statement.

The overall economic position remains positive, with economic growth of 11 per cent and growth in exports of 16 per cent expected, according to the association.

"However, the growth rate is masking a high levelling-off in some indigenous sectors because of competitive pressures and labour shortages."

SFA director Mr Pat Delaney said the housing and accommodation difficulties were a "disaster waiting to happen". The annual number of first-time buyers' grants to June 2000 was down by 15 per cent from 1996, he said, the cost of building was up by 18 per cent during the same period, and the cost of purchasing a house was up to 99 per cent.

"The SFA believes there is an indisputable economic, social and cultural and political case for increasing the capacity of people to buy a home or have competitively priced accommodation made available."

The situation was deterring workers from coming from abroad and was encouraging many young people to look abroad to fulfil their career expectations, he said. It had the potential to destabilise the entire economy, Mr Delaney said.

The latest inflation rate of 6.2 per cent is made up, the SFA believes, of 2.8 per cent from external factors and 3.4 per cent from domestic. "While this is still too high, it is significant that Germany and Belgium are also experiencing a 10-year high inflation rate."

The most serious threats to inflation are from the euro/dollar exchange rate and oil prices. The most serious internal threats are housing, labour supply and service inflation.

"If the Government relents on public sector pay, the expectations in other sectors will increase and competitiveness will suffer along with the economy," Mr Delaney said.

Sound economic decisions must prevail in the Budget, despite the absence of financing constraints. "The SFA is of the view that efficiency and productivity gains in the delivery of public services should be intensified in order to support competitiveness within the overall economy and to achieve the agreed Government target of a 4 per cent increase in current budget expenditure."