The Economic and Social Research Institute is also predicting that unemployment will rise sharply next year.
Central Statistics Office figures for the first half of this year showed GDP growth was 5.5 percent.
“While the outlook for the Irish economy remains uncertain, it is estimated to have grown by 4.3 percent in real GDP terms and by a more modest 2.2 percent in real GNP terms in 2002,” the ESRI says in its quarterly economic commentary.
Economist Danny McCoy said they estimated GDP growth had slowed to 3.1 percent in the second half of the year. He said the measures in Finance Minister Charlie McCreevy’s Budget 2003 will have a “mildly contractionary” effect.
The “braking factor” would be quite small, with next year’s GDP growth cut by about 0.25 percent.
McCoy said the budget’s cap on public sector jobs would mean that unemployment would average about 5.2 percent for the whole of next year.
The jobless rate in the last National Household Survey was 4.6 percent and McCoy said it could be heading toward 5.7 or 5.8 by the end of next year.
The ESRI forecasts inflation will average 5.1 percent next year.
“The non-traded sectors of the economy continue to be the main drivers of higher prices with a range of administered prices and indirect tax increases also making significant contributions,” the survey said. “Higher interest rates, expected towards the end of next year, would also be a contributor to inflation exceeding 5 percent for the year.”
The commentary says a tightening fiscal policy has left Ireland well within the rules of the EU’s stability and growth pact.
“Recent proposals from the European Commission to provide a more flexible interpretation of EU fiscal policy may provide a helpful background for the pursuit of sensible fiscal rules for the Irish economy,” it said. “Fiscal rules are never a panacea for deteriorating public finances. Greater efforts to utilize multi-annual expenditure plans, particularly for capital spending, are needed to ensure budgetary policy remains consistent with policy priorities along with ensuring that publicly financed projects offer acceptable rates of return.”