With the current account roughly in balance it would not be appropriate to characterise the situation thus far as simply one of overheating.

OECD

The result has been to boost inflation far above the upper target of 2% for eurozone countries set by the European Central Bank.

Inflation is currently at 5.6%, according to official Irish figures released on 11 May.

The OECD urged the Irish government to restrain public spending, despite "the difficulty in resisting public demands at a time of a sizeable budget surplus".

It forecast that Ireland's gross domestic product (GDP) would slow to 7.5% this year and next, from a "spectacular" figure of about 10.75% in 2000.

Future prospects

Despite the positive outlook, the reports said there were some clouds on the horizon such as the US economic slowdown and pressure on Ireland's infrastructure.

The OECD suggested the Irish authorities develop areas other than the capital and increase "the density of urbanisation in Dublin itself" to relieve pressure on the road and the public transport systems.

"If this is done, the standard of living should continue to improve at an impressive pace in the coming years," it concluded.