Economic growth to slow down, says Central Bank

Irish economic growth will decelerate over the next 18 months to 4 per cent in 2008 with an accompanying easing in employment growth and inflationary pressures, the Central Bank said today in its third quarterly bulletin.

However, the Bank says that even at this lower rate, Ireland's economic growth over that period will remain strong by international standards.

The Central Bank also warns that the economy remains vulnerable to the "long standing" risk of a sharp dollar depreciation against the euro to correct current imbalances. It notes there is uncertainty about the pace of slowdown in the US economy and that both risks "are of particular relevance to Ireland".

Another risk is volatility in oil prices with any supply disruptions to impact swiftly on prices.

According to the Bank house building effectively peaked in 2006 and is starting to decline to a more sustainable level and this will reduce one of the main drivers of domestic spending.

When it comes to household spending, it says investment in home improvements is likely to be maintained on the back of SSIA funds before this sector, too, eases in 2008.

"Next year a combination of further falls in housing output and decelerating consumer spending is likely to imply a further easing of domestic demand growth."

The impact of this - in the absence in a rise in exports - is likely to be a moderation in overall output growth.

The Central Bank also notes that export sector has been "relatively muted" despite a strong performance from services exports. This is partly explained by an deterioration of competitiveness in the economy, the Bank says.

On employment the Bank says the slowdown of growth in construction is depressing jobs growth with employment growth set to fall from 4.5 per cent in 2006 to 3 per cent this year with a further slowing expected in 2008.

Despite this the Bank says labour market conditions remain "positive" and that the volume of consumption should increase by 7 per cent this year, spurred on by maturing SSIAs.