The Economist Intelligence Unit (EIU) has become the latest in a lengthening line of economic institutions to cut its growth forecast for the Irish economy.
In its latest report on Ireland, the EIU forecast that Irish economic growth will slow to 5.9 per cent in 2001 - still the most rapid in the EU. But it warned that a deepening recession in the US, combined with a sharp fall in the dollar, would almost certainly cause a hard landing for Ireland.
"We also remain concerned about levels of private indebtedness and, closely linked, property prices," the report added.
The report describes the Government’s recently reduced budget surplus forecast of £2 billion as "ambitious" given falling tax receipts from reduced consumer spending.
It is also critical of last year’s expansionary budget saying: "Such largesse was difficult to justify in late 2000 at a time when evidence of overheating abounded."
It said the combination of increased spending promises by the Government since the budget and falling tax revenue will force the Minister for Finance, Mr McCreevy to rethink his budget strategy. "These developments in combination are not sustainable" the report warns.
"In response, greater emphasis is likely to be placed on spending priorities in the 2002 budget, with reductions in taxation expected to be more limited than in recent years" it adds.
But the EIU is most scathing about the Government’s handling of the Nice referendum.
It said the rejection of the Nice Treaty has undermined Ireland’s position in the EU, the results of which will be seen throughout 2001-02 and beyond, in terms of Ireland’s ability to influence outcomes and win concessions when its interests are at stake.
While it describes the Government’s referendum campaign as "dismal", it puts most of the blame on Fianna Fáil which its describes as having "a strain of insular nationalism that is instinctively hostile to foreign involvement in domestic affairs."
"As regards the prospects for the next referendum on the Nice treaty, proponents of the treaty face an uphill task in reversing the outcome," it concludes.