House prices 'set for further 10pc fall' says leading economist
House prices will fall by another 10pc before the market hits rock bottom next year, a leading economist predicted today.
Jim Power, chief economist of Friends First, believes while the recession is likely to end around the middle of this year, consumer confidence and spending will continue to be undermined by wage cuts, an uncertain labour market and further reductions in state spending.
The finance house revealed six out of 10 consumers are not confident in the Government's ability to revive the economy, with a third backing a Fine Gael/Labour coalition to do the job.
Mr Power said it was difficult to be convinced the economic situation will improve considerably in the near future.
"The Irish economy is going through an extremely difficult adjustment and the situation remains precarious. It is way too early to sound the all clear," he warned.
"A fundamental reform of taxation and spending is required.
"The most economically efficient tax system is one based on relatively low marginal rates but spread broadly - the notion that the problem can be solved by increasing taxes on the so-called 'better off' is naïve and would go nowhere towards solving the problem."
In its quarterly economic outlook, Friends First examined the views of 1,000 Irish people on the current and future economic situation.
It found 86pc of those surveyed believe creating jobs is the biggest challenge facing the Government, followed closely by reducing Government borrowing (51pc) and enabling the banks to lend again (45pc).
The research also showed confidence in the Government remains low with with a third believing the economy will not return to growth until after 2012.
Some six out of 10 are not confident in the ability of Irish banks and NAMA to stimulate the economy.
Mr Power said he found it difficult to see where meaningful job creation might come from and predicted further job losses in construction, retail, hotel and restaurant, financial services and the public sector.
House prices, which he said had plunged by at least 50pc since a 2007 high, will drop another 10pc before bottoming out in 2011.
Mr Power also said it was critical that the cost of doing business and the cost of living in Ireland be further reduced to reap the benefits of a global economic recovery.
"This is the major challenge for Irish policy makers - to ensure that as the external environment improves the Irish economy is in a position to exploit it," he added.