The consumer will overtake construction as the key driver in the economy this year, according to a new analysis from Bank of Ireland.

Dr Dan McLaughlin, the bank's chief economist, yesterday signalled a growing shift towards a "consumer-driven" economy in the Republic.

He also judges that consumers have been changing their spending habits, with pub sales, for example, losing out in favour of more home-based activities.

Bar sales have fallen by 15 per cent in volume terms over the past three years, a drop that Dr McLaughlin attributes to both prices and changed consumer habits. Hardware sales, by contrast, have been booming.

Dr McLaughlin is expecting consumer spending to climb by a healthy 4 per cent this year, up from estimated growth of 3 per cent in 2004.

"The trend towards a consumer-driven economy is entrenched now and will become more apparent," Dr McLaughlin said. He was speaking at the launch of Bank of Ireland's Irish Business Review.

Bank of Ireland points out that consumers' income has been rising faster than their spending, thus leaving a "latent" source of spending power for this year.

"The January car sales may be a precursor of a much broader upturn in consumer spending in 2005," said Dr McLaughlin.

This rise in disposable income has come about as salaries and overtime have grown strongly on the back of a tighter labour market. In this light, Dr McLaughlin described social partnership agreements as "a waste of time and space".

He is expecting economic growth by the gross domestic product measure to accelerate from between 5.5 and 6 per cent in 2004 to more than 6 per cent this year.

The Bank of Ireland analysis sees expansion in the construction sector easing as consumers contribute more to overall growth.

Close to 15 per cent of economic output is thought to have flowed from construction last year, with Bank of Ireland's own lending book in the sector growing by 47 per cent in the 12 months to September.

Dr McLaughlin expects the sector to remain strong this year but he sees growth in house-building "peaking out" close to last year's estimated output of 75,000 units. "Construction will have a reasonable year," he said, suggesting that growth would be driven mostly by public-sector projects and other non-residential activity.

Bank of Ireland is positive on the building sector in general, and is still seeing good growth in lending to firms in the area.

Dr McLaughlin believes that the declining employment in the manufacturing sector will "bottom out" in 2005.