Firmer economic growth, a likely cyclical upturn in inflation and further modest increases in interest rates in the US, UK and Europe will benefit the investment environment and equity markets, according to an outlook report issued by AIB Investment Managers (ABIM) yesterday.

The report, Investment Outlook for the Year 2000, forecasts the Irish economy will grow by 6.5 per cent during 2000, compared to an average growth of 3 per cent in the euro zone.

The extent of the upward rise in international inflation will be restrained by global competitive pressures, the positive effects of new technology on productivity and business costs.

This should also limit the extent to which interest rates will need to be increased. The environment is likely to be more helpful to equity markets than to bond markets. However, ABIM says bond yields have risen significantly over the past year and already discount some increase in inflation and interest rates.

Price/earnings valuations for many of the world's leading stock markets are quite demanding, especially with regard to technology stocks, the outlook states.

"It is far from clear whether current ratings are justified and where a selective approach to investing in such companies is warranted, particularly in view of the rapidly changing technology sector."