The number of houses built this year could climb to 80,000, up from last year's record-breaking 69,000 total, according to a new report from Davy Stockbrokers.

The broker is expecting a drop in house-building activity to be recorded in 2005, however.

Pencilling in a total of 70,000 house completions for next year, Davy points out that this would still be "exceptionally high" by normal criteria.

The new analysis, published today, sees Davy raise its forecasts for housing output and for wider economic growth.

The report highlights the improving health of the public finances, with Davy now predicting that the Minister for Finance, Mr McCreevy, could be in a position to give away €1 billion on next December's Budget Day.

This sum would easily accommodate an indexation of the tax bands to take account of inflation, as well as some increases in social welfare.

It would also leave the public finances well within the parameters set by the European Commission under the Stability and Growth Pact.

"Very healthy stuff," declares Davy.

The broker's economists - Mr Robbie Kelleher and Mr Rossa White - say economic recovery has now taken hold in the Republic.

They have raised their forecasts for gross national product (GNP) for this year from 3.7 to 4 per cent.

Some economists argue that GNP offers a better measure than gross domestic product (GDP) of how the economy is performing on the ground since it excludes the profits of foreign multinationals based in the Republic.

For 2005, the broker's GNP forecast has climbed from 2.6 to 3.5 per cent.

Davy points to the "momentum" that has emerged in a range of economic releases from the Central Statistics Office (CSO) as the basis for the upgrades.

One such data release on the volume of residential construction has prompted the economists to raise their forecast for housing output this year from 76,000 to 80,000.

The upgrade, which is slightly less dramatic than the 90,000 some were expecting last week, was also supported by upbeat trading statements from builders' merchants and a striking acceleration in the stock of mortgage debt held by Irish consumers.

At the start of January, they were expecting housing output of 64,000, which would have been 7 per cent down on the 2003 total.

"Yet again it looks as though the housing market will surprise on the upside," Davy remarks.

When house completions are taken together with the construction of commercial buildings, the broker is forecasting an 8 per cent real increase in overall building output this year.

For 2005, the broker says the construction of 70,000 houses will lead to a 12.5 per cent volume decline in a sector that accounts for as much as 7 per cent of employment in the State.

The drop will come, according to Davy's economists, because the longer activity levels remain above long-term demand, the more significant an eventual correction could be. Davy sees the impact of this fall being dampened, however, by a further recovery in commercial activity. Overall building output should thus drop by 3.5 per cent in 2005.