The economy will grow by four per cent for the remainder of the year, according to the latest edition of Monthly Market Focus, published this morning by AIB Corporate and Commercial Treasury.
However inflation is expected to remain high and increases in public spending will almost certainly lead to a significant budget deficit, the reports says.
It is also optimistic that the global economy will continue to recover based on leading indicators which "point to a continuation of the upswing in global activity. Growth is picking up in the EU, although Germany remains a notable laggard."
"However, the pace of activity is moderating in the US and Japan after the buoyant first quarter performance. A common feature of the strengthening in economic activity is the strong performance of exports as well as a slowdown in inventory liquidation," it goes on to say.
The report also suggests that the recent stock market downturn will be reversed in the second half of the year. "The turn in the inventory cycle and relaxed monetary and fiscal policies to date should continue to stimulate economic activity," the reports says.
"This should set the stage for extensive monetary tightening during the second half of the year. There have already been rate hikes in Australia, New Zealand, Canada and Sweden during the second quarter. Rate hikes by the BoE, ECB and Fed, in that order, are expected during the second half of 2002, starting in Quarter three," it added.
The report also predicts that the ECB will raise its base interest rates by something in the region of .5 per cent over the next five months and suggests that both the Fed and the Bank of England will do likewise.