Ireland is one of a number of countries where the housing market could be vulnerable to rising interest rates, according to the International Monetary Fund's (IMF) latest international outlook.
Bond interest rates - which determine the level of longer-term fixed interest rates charged to borrowers - have already risen and the report warns that a further sharp rise could affect the global recovery.
In particular, it could hit countries where house prices have risen sharply in recent years, such as Ireland, the UK, Australia and the Netherlands.
Higher interest rates could reduce the support to housing demand "and could increase the risk of a housing bust" in some places, it said.
However, while the IMF analysis points to the danger of rising long-term interest rates, it also suggests that shorter-term rates may have to be cut again by the European Central Bank (ECB) to support economic activity.
As many borrowers in Ireland are on variable interest rates - which are set relative to ECB base rates - they may actually benefit from another modest decline, even if the cost of longer-term fixed rate products rises.
Last month in its annual assessment of the Irish economy the IMF, the Washington-based policy advisory body, said there was a "significant risk" that house prices are overvalued, leaving the market vulnerable if unemployment were to rise sharply.
However a statistical analysis undertaken by the IMF said it was impossible to say for sure whether - or to what extent - prices were overvalued.
In common with many other forecasters, the IMF has also reduced its growth forecasts for Ireland this year, now anticipating GDP growth of just 1 per cent.
However as signs of international recovery become more evident, it remains optimistic of a pick up in 2004, when 3.8 per cent GDP growth is forecast.
Overall, the IMF says that the world's economy is showing signs of life , while warning that the ballooning United States budget and trade deficits could spell trouble , particularly if they sparked a big fall in the US dollar.
In the report, the IMF maintained its world growth outlook of 3.2 per cent for 2003 and a rate of 4.1 per cent next year.
"For the first time in what seems like a very long time, we are reasonably optimistic about seeing a return to normal growth in the global economy or perhaps even better," according to its chief economist, Mr Kenneth Rogoff.
The outlook is published ahead of the annual IMF/World Bank meeting attended by the world's finance ministers and central banks in Dubai.
The IMF said the nascent economic rebound may be uneven with the United States and emerging Asian economies leading and Europe still struggling to turn the corner.
"For the moment, most Europeans who want to see an economic recovery will have to watch it on TV," Mr Rogoff said.
