ANOTHER year of strong economic growth has been forecast by the Economic and Social Research Institute.

For the second successive year, the ESRI predicts that the economy will show above average growth, with Gross National Product expected to rise by 5 per cent. In 1995, a record year for job creation, GNP increased by 6.75 per cent.

While predicting that the economy will grow at a slightly slower pace in 1996, the ESRI's latest Quarterly Economic Commentary forecasts that this growth rate will be sufficient to support up to 31,000 new jobs over the next 12 months.

The report has warned, however, of the long term implications for the Republic of a deterioration in the peace process and the resumption of violence. Its main effects will be felt in the tourist sector, it believes, and it may also encourage multi nationals to invest elsewhere.

This year, however, it is confident that continued strong economic growth could support up to 31,000 new jobs. Unemployment, however, will remain high over the next two years, it says, predicting only a moderate reduction in the number of people signing on the Live Register by the end of 1997.

This year, it expects a drop of up to 3,000 in the number of people out of work, with the Live Register estimated to fall to around 275,000 by the end of December.

It predicts interest rates will remain low throughout most of the year, but warns that any depreciation in the value of sterling on the foreign exchange markets could bring pressure for higher rates.

Inflation will remain well behaved, with average rates expected to stay at close to current low levels of 2.25 per cent.

Public finances should again outperform the Government's Budget targets, according to the ESRI, with a small current Budget surplus and the Exchequer Borrowing Requirement coming in well below 2 per cent of GNP.

The report signals continued rapid growth in the economy over the next few years. "Substantial progress" will be made towards reducing total unemployment in the medium term and in lowering Ireland's debt to GNP ratio, it states.

While the economy will remain vulnerable to external shocks, ESRI economist Dr Terry Baker believes the principal danger will be the re emergence of unrealistic expectations" of the rate of progress that can be achieved domestically.

"Attempts to force the rate of increase in average real incomes or total employment significantly above that which is already, being attained could undermine the process of steady, but gradual, improvement in the Irish economy", he said yesterday.

The broad national consensus on a fiscally responsible, low inflation and competitiveness conscious growth has yielded "great benefits" in terms of potential employment growth and the stabilising of the public finances, according to the report. In addition, most people have enjoyed a steady, but moderate improvement in their living standards.

Recently, however, it says, there are "worrying signs" that this consensus is beginning to weaken. It warns that any slippage could prove costly, and slow the rate of job creation.