Ireland's recession will be deeper than previously forecast and extend into 2009 as the country's housing market slumps and the global financial crisis worsens, the Economic and Social Research Institute said.
Gross domestic product is expected to contract 1.3 percent in 2008 and drop 0.7 percent next year, the Dublin-based institute said today by e-mail. It had previously predicted a fall of 0.4 percent in 2008 and growth of 2 percent next year.
Ireland became the first euro-area country to slide into a recession when its economy contracted for a second straight quarter in the three months through June. That follows a decade-long boom, sparked by exports in the mid-1990s and then extended by record homebuilding. Ireland last week said it would guarantee its banks' deposits and debts for two years, seeking to calm investors after banking shares plunged.
''Weak international conditions in both 2008 and 2009 leave little scope for external demand to fill the gap left by falling internal demand,'' the report's authors said. ''It is with regard to 2009 that we have introduced a more severe downward revision.''
Ireland's central bank last week said gross domestic product will drop 0.8 percent this year and 0.9 percent in 2009.
European confidence in the economic outlook last month fell to the lowest since the slump in the wake of the Sept. 11 terrorist attacks after a global credit squeeze claimed U.S. and European institutions and sent stocks plummeting.
A downturn in commercial building in Ireland and a fall in government consumption of goods and services will contribute to the deterioration, according to the ESRI. The group expects average unemployment of 6.1 percent in 2008 and 8 percent the following year, with net migration of about 30,000 in 2009.
Ireland's Finance Ministry last week forecast a full-year deficit worth 5.5 percent of GDP, almost double the European Union limit. The government should aim to stabilize the shortfall at that level in 2009, the ESRI said.
''We need to emphasize the uncertainty surrounding the forecasts and the possibility that further downward revisions may be applied,'' the ESRI added.
The country's central bank said on Oct. 3 that construction may plunge 19 percent this year and next, while consumer spending growth may slow to 0.4 percent from 6.3 percent in 2007. House prices fell 9.9 percent in August from a year earlier, according to Irish Life & Permanent Plc.
Ireland's government has brought forward its budget by six weeks to Oct. 14 as it battles the slowdown. (Bloomberg)