The Irish economy should recover strongly throughout 2002 in line with the rest of the world so long as wage inflation moderates and the euro remains around current levels, the Central Bank said today in an upbeat assessment of the economy.
In its latest quarterly bulletin published today the bank which is normally among the most cautious of economic institutions said GDP could grow by 3 per cent this year with most of the growth expected in the latter half of the year and spilling over into next year.
The bank admitted that its forecasts were based on the optimistic assumptions of a benign international environment and no appreciable strengthening of the euro.
The bank said the country had experienced a "short and mild downturn" rather than a full blown recession and said it expected at least a rapid initial recovery. However it cautioned that the longevity and strength of the recovery is still uncertain once the initial recovery phase is over.
Wage inflation especially in domestic companies continues to be a cause for concern. The bank pointed out that the general price level of goods in Ireland is now 10 per cent higher than the rest of Europe and EMU has not brought the expected convergence of Irish inflation with the rest of the euro zone.
The bank said wage inflation which is running at over 9 per cent per annum is steadily eroding Ireland’s competitiveness and domestic industry could be badly exposed if the euro rose sharply.
Central Bank officials said the problem of escalating wage demands must now be seriously looked at if the fledgling recovery is to be sustained.