Further interest rate rises pose the single biggest threat to the Irish economy in the short term, a leading financial expert warned today.
Ciaran Kane, head of treasury at Barclays Bank Ireland, said although euro zone rates are still at relatively low levels historically, the ECB rate is likely to hit 4 per cent later this year, which will be a doubling in the rate from a low of 2 per cent in the period 2003-2005.
Mr Kane said: "With over 80 per cent of Irish mortgages still on a floating rate basis, a sustained period of higher interest rates will have an impact on the appetite of homeowners and investors to take on additional debt."
"It remains to be seen whether it affects their capacity to service existing debt obligations," he said.
Mr Kane said that interest rate increases will also affect economic prospects in Ireland's main trading partners.
Barclays is forecasting US interest rates to reach 6 per cent this year from 5.25 per cent currently, and UK rates will likely increase again in April after a surprise 0.25 per cent hike in January.
"We are also witnessing meaningful economic growth in Japan for the first time in a number of years and interest rates there are likely to move higher over the course of this year," he said.
Ireland's economic progress may also be impacted over the next 12 months by factors such as exchange rates, commodity prices, and the ongoing challenge to manage our cost base to ensure that we remain competitive from a global perspective, Mr Kane said.
He noted that although Irish exporters have benefited from a strong sterling, Barclays forecasts a weakening in the currency this year.
The converse has been the case with the United States, with the dollar weakening in 2006.