The housing market could be at risk of a hard landing that would halt property investment and eat into spending across the economy, the Organisation for Economic Co-operation and Development (OECD) said yesterday.
In its twice-yearly economic report, the Paris-based OECD identified a sharp fall in house prices as a key downside risk to an otherwise sunny outlook for the economy.
It also warned that exports were becoming less competitive, and could be threatened further by a stronger euro.
Exporters will be unable to absorb euro strength by lowering prices indefinitely, the OECD noted.
In the housing market, the think-tank expects prices to slow "somewhat" this year and next but acknowledges that a hard landing could yet be spurred on by a "stronger-than-expected increase" in interest rates.
A separate report by Davy economist Rossa White says the inevitable downturn in construction over the coming years will slow the Irish economy slightly.
He says construction, which currently accounts for 22 per cent of GNP and 12 per cent of employment, will decline as housing output falls. He estimates that over 40 per cent of the residential accommodation built in the past two years is lying vacant, an unsustainable position.
However, he argues that a cooling in the sector would knock just one percentage point off growth forecasts, leaving the economy on course to grow by almost 4 per cent in 2006 and 2007 - still well ahead of the euro-zone average.
In its headline forecast, the OECD said the Republic should grow by 5.3 per cent this year in gross domestic product terms. For 2006, the organisation has pencilled in growth of 5 per cent.
The report points out that growth at this level is "dwarfing" the performance of most other parts of the euro zone.
Like most domestic economists, the OECD sees domestic demand, supported by strong income growth and government spending, as the main driver behind the expansion.
Inflation is forecast to remain "relatively muted", although the OECD warns that price pressures could be revived in sheltered sectors "where regulations limit the scope for competition".
Strong wage growth, at 5.25 per cent, will be only partly offset by high labour productivity growth, according to the report.
