The Organisation for Economic Cooperation and Development (OECD) has expressed its confidence that the Irish economy will recover over the next two years and will record growth of close to five per cent by 2005.
In its twice-yearly economic outlook, the OECD says that economic growth, which has fallen back from double-digit levels during the boom of the late 1990s, will recover to around 3.5 per cent next year before climbing to close to five per cent the following year.
While the Republic's high inflation has eased, competitiveness has deteriorated, the OECD says.
It blames the decreasing competitiveness on the impact of a strong euro
and spiralling wage costs.
The OECD has expressed its concern that this fall in competitiveness could have implications for foreign direct investment.
The OECD also said mortgage interest tax relief should be cut in the upcoming budget in order to allow resources to be reallocated towards infrastructure development.
It also said that while it expects the Irish housing market to remain buoyant, the risk of a major correction if fixed interest rates rise sharply still exists.
The report recommends that, to contain inflationary pressures, Irish competition policy should focus on the "sheltered sectors", notably construction and business services.
Globally the OECD says "the most likely scenario for the next two years is one of sustained growth in the United States and progressive recovery in Europe and Japan, in a context of low inflationary pressures and with a gradual reduction in unemployment."
