The economy will grow by 7.5 per cent this year, although inflation will pick up significantly, according to the latest estimates from the Department of Finance.
In its annual Economic Review and Outlook, the Department predicts that 50,000 jobs will be created in 1998, with unemployment falling to 9 per cent.
But it cautions that the current economic boom cannot continue unabated. If growth is not kept to a sustainable level, the "inevitable outcome" will be the emergence of adverse conditions, including inflationary wage demands, accelerated inflation, erosion of competitiveness and declining investment and employment as well as growth.
For now, however, the economy is continuing to grow strongly, with rising employment. Gross National Product is expected to reach 7.5 per cent this year compared with a Budget forecast of 7 per cent. Gross Domestic Product, which includes profit repatriations by foreign multinationals, will rise by 8.7 per cent compared with a Budget forecast of 8 per cent.
Inflation, however, is expected to average 2.75 per cent compared with a Budget forecast of 2 per cent - although the Department expects it to "moderate significantly" next year.
The Minister for Finance, Mr McCreevy, warned that inflationary pressures reinforced the need for responsible attitudes by the social partners to pay and public service enhancements.
"These pressures emphasise the need for strict adherence to the terms of Partnership 2000," he said.
The Department cautions that it is now clear that very strong growth is generating pressures which could eventually undermine the sustainability of economic and social progress.
In one of its longest commentaries in recent years, the Department points to a range of problems facing the economy, including inflation and wage pressures as well as investment needs and the booming housing market.
Mr McCreevy said the Government was committed to delivering a 1999 Budget which has "as its primary objective" the maintenance of low inflation.
"In current conditions, budgetary policy must avoid adding unduly to domestic demand, which is already growing very strongly."
In line with recent statements by several Ministers, the Outlook says the Budget will be aimed at "raising substantially" the point at which individuals enter the tax net and at which they move to the higher rate. Hence there is likely to be a focus on widening bands and increasing allowances rather than cutting tax rates.
There will also be cuts in corporation tax, which is necessary to underpin the continued growth in employment, according to the Department. But it warns that measures to claw back additional revenue from business will be pursued.
Incentives for those not in work to take up jobs are also likely to be strengthened. The Department warns that labour shortages of both skilled and unskilled workers are threatening to curtail economic growth.
And wage inflation is also "very much a concern". The Department cautions that this could have serious effects on competitiveness - leading to job losses. It says this "must be avoided".
Repeating Mr McCreevy's mantra in the current round of talks on Partnership 2000, the Department states that "local bargaining in the public service must comply with the terms of the national agreements to avoid adding excessively to the public service pay bill".
It points out that the rapid increase in house prices is "a cause of concern". This increases the pressure for excessive pay rises and "adds to the vulnerability of householders". Further measures will be considered to cool down the market if necessary, it warns.
The Department says resources need to be put away to compensate for the fall-off in structural funds. Without this, Ireland might become less attractive for foreign multinationals. And in what will be seen as an indication of higher infrastructural spending, Mr McCreevy said resources will be "prioritised" in a way which allows key infrastructural deficiencies to be met. The Department is forecasting that the Exchequer finances will remain in surplus at about 1.7 per cent of Gross Domestic Product or £700 million, compared with a Budget target of 0.3 per cent. The general Government debt is expected to fall to 55.4 per cent of GDP in 1998.