THE CENTRAL BANK has warned that the government needs to avoid any policy that will cause the economy to overheat — and that buffers need to be put in place if Ireland is to avoid another boom-bust cycle.

In its third quarterly bulletin for the year, the financial regulator forecasts growth in the economy of 4.7% this year and 4.2% in 2019.

Mark Cassidy, director of economics and statistics said the continued growth, which is broadly balanced between domestic and export activity, is to be welcomed, but he warned that there is a risk now of “overheating”.

He said the strength of the economic growth means the economy risks “hitting full capacity” which gives rise to the risk of “boom-bust cycles”.

“This underscores the importance of building fiscal buffers during the good times,” he said. Cassidy said it is important now that the government avoids any policies that would add to this risk.

“There is some scope for more ambitious fiscal policies,” he said.

Equally, Cassidy said there is a need for the government, businesses and indeed the Central Bank itself to be prepared for “all possible Brexit scenarios”.

It is clear that a ‘hard’ or disruptive Brexit remains a material risk, while the threat of potential trade wars and changes to international taxation have not abated.

The Central Bank said Ireland’s unemployment rate is expected to average 5.4% in 2018 and the proportion of full-time employment has increased this year.

Wage growth is also expected to pick up, with an increase of 5.5% this year and 5.3% next year.