The Republic will outpace the global economy in 2005, expanding strongly while growth rates decline elsewhere, the Economist Intelligence Unit said yesterday (EIU).

The London-based think tank warns that risks such as higher oil prices or an interest-rate shock could turn a "mild global slowdown" into a "slump" next year.

It predicts that world GDP growth will slow from 4 per cent in 2004 to 3 per cent next year, but says the risks to this benign scenario are considerable.

For the Republic, the unit is forecasting that GDP growth will remain steady at 4.9 per cent next year, with inflation to stay at low levels of about 2 per cent. The growth will come as private consumption strengthens on the back of a more optimistic economic outlook and a more robust outlook for jobs and incomes, according to the analysis.

The forecasts for the Republic are on the low end of a range set by bodies such as the Department of Finance and the Economic and Social Research Institute.

The unit describes the Finance Minister, Mr Cowen, as "one of the most capable members of the Cabinet" and says he will bring "greater focus and drive" to his Department. It says the removal of the new Minister for Social and Family Affairs, Mr Brennan, from the Department of Transport was "among the less auspicious changes to the Cabinet".

The prospects for reform in the transport sector have receded due to the move, according to the analysis.

The EIU also observes that many in Fianna Fáil fear the electoral impact of provoking affected transport interest groups, such as the unions.

The think tank warns that the euro zone is at risk in 2005 if factors such as a sharp spike in oil prices and a substantial rise in interest rates were to converge. The 12-state area will perform sluggishly even if such dangers are avoided, the unit suggests.

The report claims that other potential threats to the world economy include the risk of a sharp slowdown in China and the destabilising effect of economic imbalances in the world's largest economies.

The EIU highlights Equatorial Guinea as the country most likely to grow fastest in 2005 by posting expansion of almost 20 per cent, but also predicts that three of Europe's biggest economies - Italy, Germany and France - will be among the 10 worst performers worldwide.