A sudden rise in the euro's value or a prolonged US downturn would have a serious effect in the Republic, the Central Bank warned yesterday.
The bank's governor, Mr Maurice O'Connell, also said higher interest rates would be more suited to the State's current economic position.
No sensible observer would suggest the Bank's forecast growth rate of 6 per cent this year was sustainable, he said.
A gradual slowdown to an expansion rate of 4-5 per cent would be welcome, Mr O'Connell added. This would be impressive by any standard, European or otherwise.
In an interview with a London-published journal, Central Banking, he said inflation this year would fall to 4 per cent from around 7 per cent in 2001. "This is an improvement . . . but still not good enough and our inflation is still higher than that of other euro-zone members."
Mr O'Connell agreed there was a danger that rising wages would force prices up quickly, eroding competitiveness.
Asked whether large investments by US high-tech groups meant the Irish economy was especially vulnerable, he said: "Hopefuly it will not happen . . . Either a prolonged US downturn or a sudden appreciation of the euro would cause problems.
"If the price of oil jumped it would affect us, as it would affect everyone else. On the other side of the coin there are upside risks."
On interest rates, Mr O'Connell said it was no secret the bank would prefer higher charges. He accepted, however, that an independent or specialised monetary policy was not a possibility in the euro zone.
"We are in the euro area for the long haul because we realise that they can offer us a kind of security and stability and a low inflation environment that, for us in the long run, is a very good package. You must take the rough with the smooth."
On pay, Mr O'Connell cited "upward pressure" but said the consensus achieved through the national agreement had "served us very well".
"It is a huge problem to convince the ordinary person in the street as to the reasons why you cannot just share out everything which you have and the difficulties which would result if you did."
