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Monday, 30 April, 2001, 17:37 GMT 18:37 UK
Irish growth forecast cut
Finance Minister Charlie McCreevy
The central bank mirrors EU criticism of McCreevy
Ireland's central bank expects growth to fall by 3.75% in 2001, after hitting 9.75% last year, and warned it could head lower.

In its annual report, the central bank assumed a short and sharp US economic slowdown and no new foot-and-mouth restrictions on the Irish agricultural sector.

"If these assumptions prove to be too optimistic, economic growth could be significantly slower," the report said.

The central bank has also echoed calls from EU finance ministers to increase taxes and cut spending to slow the economy.

The Irish finance minister received an unprecedented reprimand from his counterparts for the his tax cuts and spending plans in the 2001 budget.

Irish boom

Fuelled by massive inward investment, particularly from the US, the once ailing Irish republic has emerged as Europe's fastest expanding economy, growing by about 8% on average since 1994.

But success has brought with it high inflation, stoking fears of overheating and labour shortages.

The country's agriculture and tourism industries have both been hit by restrictions imposed to prevent the spread of foot-and-mouth disease.

Earlier this month Finance Minister Charlie McCreevy said a serious foot-and-mouth outbreak could dent economic growth by 1.5%.

He added that the impact of foot-and-mouth combined with the effects of a US slowdown would reduce the risk of the Irish economy overheating.

Budget fight

The Irish finance minister has been criticised at home and abroad for his 2001 budget, which slashed taxes and raised benefits at a time when domestic inflation was running at three times the euro zone average.

Ireland has received an unprecedented reprimand from EU finance ministers for the budget which they fear could further stoke inflation and weaken the euro.

The EU ministers called on Ireland to ditch its plans for tax cuts and spending increases, which the central bank has mirrored in its annual report.

It says that over the past three years about three quarters of economic growth had been due to strong domestic demand, with only a quarter accounted for by net exports.

"Fiscal policy in particular should be seen as an appropriate means of slowing economic growth to a more sustainable rate," it said.

IMF forecast

In the International Monetary Fund's six monthly World Economic Outlook report released last week, it predicted the Irish economy will continue to grow at 7% this year and 6.2% in the next.

But it said countries like Ireland would feel the weakening external demand caused by the global economic slowdown which would help reduce overheating.

This would be especially true in Ireland which receives substantial foreign direct investment from the US, it said.

Click below for background and analysis on Europe's single currency

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