A sharp slowdown in UK economic activity could put a chill on Northern Ireland's growth, according to business advisors PricewaterhouseCoopers (PwC).
The public sector has created more than 8,300 jobs since 2003
PwC's quarterly UK Economic Outlook said in recent years the province has become one of the star performers among the UK's 12 regional economies.
However, PwC said the cost of doing business in Northern Ireland was still rising well ahead of inflation.
It also experienced the third steepest jobless fall over the past 12 months.
Only Scotland, the south west and West Midlands saw regional unemployment fall faster.
Despite a sharp downturn in economic growth across the UK in the past year, Northern Ireland remained the fourth fastest-growing regional economy.
The UK Economic Outlook predicts that UK consumer spending, economic growth and investment will all slow sharply over the next 24 months.
It said if available public expenditure for Northern Ireland is further reduced because of a steep downturn in UK economic activity, the impact on the local economy could be particularly serious.
PwC managing partner Stephen Kingon said Northern Ireland's economic growth and consumer confidence remains "perilously dependant" upon continued and "disproportionately high" levels of government expenditure.
"Looked at in terms of the headline indicators of falling unemployment, new job creation and output, Northern Ireland compares remarkably well with other UK regions," he said.
"However, because public expenditure is the main driver of growth, continued prosperity is only as good as government's ability to keep pumping money into the local economy."
He said that if expenditure was maintained growth would continue, but "a more more likely scenario would be further reductions in public expenditure, beyond those already announced".
"If these were not matched with robust private sector recovery, we could see a worst case scenario of annual growth in Northern Ireland falling to just over 1%," he said.
The UK Economic Outlook said that total UK consumer spending, which averaged 3.7% per annum between 1997 and 2004 is likely to fall to 1.7% in 2005, recovering only slightly to 1.9% in 2006.
PwC also forecasts that UK investment growth will fall from 4.9% in 2004 to 2.9% in 2005, with overall UK GDP growth in the second quarter of 2005, dropping to 1.5% - the lowest level since 1993.
PwC says that employment in Northern Ireland's public sector and private services continues to increase rapidly; however, manufacturing is less buoyant.
Since 2000, Northern Ireland's manufacturing sector has experienced a 16.5% fall in employee jobs, while private services (primarily retail and hospitality) and the public sector grew by 16.2% and 12.6% respectively.
Since mid-2003, the public sector has created more than 8,300 jobs.