“Pent-up demand after a long crisis may result in stronger private spending than projected,” the OECD said.
“Strong property prices may boost construction activity further in the short run, but also risk sparking another spiral of higher property prices and credit.”
Despite the eurozone getting a grip on its debt crisis by improving its bank safety net, “Ireland’s still high debt leaves it particularly vulnerable to any re-emergence of the banking and sovereign debt crisis”, it said.
The OECD slightly raised its Irish economic outlook and now projects GDP will increase by 5.6% this year and then continue to grow strongly in 2016, by 4.1%.
The economy is predicted to grow briskly, expanding by 3.5% in 2017.
It forecasts the rate of growth for exports of goods and services will, however, slow dramatically from around the 12% expansion rate this year.
The €1.5bn in tax cuts and spending increases announced for 2016 by Finance Minister Michael Noonan in his budget last month should be targeted at lowering “still-high” unemployment, including through so-called activation jobs training policies, the OECD said.
It made no reference to the further €1.5bn expenditure measures the Coalition revealed last month for spending in the last two months of the current 2015 budget.
It sees the current jobless rate of 9.4% falling to 8.3% next year and to 7.5% in 2017.
Irish banks still need to deal with the fifth of loans which are categorised as non-performing, as corporates and households continue to pay down debt.
Irish agriculture will need more unspecified measures if the country is to meet its 2030 target to cut carbon emissions, the OECD said.
On the world economy, the OECD said global trade flows have fallen dangerously close to levels usually associated with a global recession.
The US Federal Reserve should go ahead with its first rate hike since the financial crisis as a recovery gains steam in the US and Europe.
It said global trade would grow by only 2% this year, a level it has fallen to only five times and that coincided with downturns: 1975, 1982-83, 2001, and 2009.