IRELAND'S economy is strong and growth looks set to remain robust over the medium term, the International Monetary Fund said yesterday.

But it added the rider that growth could slow sharply if the cooling in the property market worsened.

The Tanaiste and Minister of Finance, Brian Cowen welcomed the IMF's "positive assessment" of the Irish economy's performance and prospects.

The report acknowledges the continued impressive performance of the economy with strong growth and one of the lowest unemployment rates among advanced countries.

"The IMF said that, following a visit to Ireland, that it expected gross national product (GNP) growth of 4.3pc this year, slowing to 3.2pc in 2008, while gross domestic product (GDP) is seen as rising by 4.8pc in 2007 and 3.5pc the following year.

The Tanaiste emphasised that this growth rate projection is very high by international standards and is far more favourable than those of our fellow EU member states.

Rapid house price increases and booming residential construction had been an important driver of economic growth and bank lending in the past, the IMF said, highlighting them as among the risk areas needing "careful attention."

The growth outlook of the United States and a deterioration in global financial market conditions, were also concerns. Ireland's banking system continued to perform well, but rapid credit growth meant it too faced vulnerabilities.

"The banking system is well-capitalised, profitable, and liquid, and nonperforming loans are low," the IMF said. "However, bank lending to construction and real estate firms amounts to 47pc of GDP."

The Tanaiste welcomed the IMF's endorsement of the Irish banking system.

The IMF noted that all stress tests carried out in Ireland indicated that cushions were adequate to absorb a range of shocks. "The banking system is well-capitalised, profitable, and liquid, and nonperforming loans are low".