A slowdown in the US economy and the outbreak of foot-and-mouth disease could shave between one and 1.5 percentage points off economic growth rates in the Republic this year, but growth will still remain strong. On the day the first case of foot-and-mouth disease was confirmed in the Republic, Bank of Ireland chief economist Dr Dan McLaughlin remained very positive about the prospects for the economy, saying falling interest rates would boost consumption, house prices would continue to rise and the rate of inflation would drop.

Dr McLaughlin insisted the Irish economy continued to be one of the most competitive in Europe, with low rates of taxation and high productivity the key factors that would secure US investment here. He acknowledged a slowdown in the US economy would dampen demand for European exports and would slow economic growth across the euro zone. However, he said the Irish economy would still be among the top performing economies in Europe, with gross national product growing by between 8.5 and 9 per cent.

Dr McLaughlin said it was too early to predict the impact of foot-and-mouth on economic growth and it would be some months before this could be determined. The agriculture and food processing sector account for about 6 per cent of gross domestic product but the outbreak could also have an impact on tourism and consumer spending.

Interest rates will continue to fall across the euro zone, with the European Central Bank expected to lower rates by as much as 0.5 of a percentage point in April or May, helping to put more money into people's pockets and reduce the headline rate of inflation.

Dr McLaughlin believes further interest rate cuts will follow, which could bring the rate down to around 4 per cent. And, while lower interest rates will reduce mortgage repayments, house prices will continue to rise. Demand for housing is still increasing, while the supply has begun to slow again which would help to fuel higher prices, he said.