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Wave goodbye to a bad year ... and say hello to one that'll be much worse

If you thought 2008 was bad, then brace yourself -- because 2009 will be even worse.

The economic downturn will get a lot worse before it gets better. Dan White gives his forecasts for the New Year.

Inflation will fall to zero or even lower

With consumer confidence on the floor and commodity prices falling, the annual inflation rate is already dropping like a stone, having halved to just 2.5pc over the past six months.

By early in the year prices will have stopped rising and I expect prices to start falling later in the year.

The Government will be forced to cut the VAT rate

The 6.5pc gap between the Irish and British VAT rates is not sustainable.

With tens of thousands of shoppers heading North every day, Finance Minister Brian Lenihan will be forced to perform a humiliating U-turn and bring the Irish VAT rate into line with the 15pc British rate.

Second 2009 Budget before Easter

With public spending running at more than €10bn ahead of tax revenue the Government will be forced to introduce a second 2009 Budget, probably before Easter.

This second Budget will feature brutal spending cuts. If you think the October Budget was bad, you ain't seen nothing yet.

The national pay deal will be scrapped

With prices set to fall, the latest national pay deal, which provides public sector workers with a 6pc pay rise over 21 months, is now unaffordably generous.

Public sector pay and numbers will be cut

With public sector pay gobbling up almost two euros in every five of public spending, slashing the €19.6bn public sector pay and pensions bill is essential if the Government is to get even close to balancing its books.

This is likely to include both a reduction in the 372,000 workers currently on the public payroll and pay cuts for those who hang on to their jobs.

House prices will continue to fall even lower

Already house prices have fallen by 15pc from their 2006 peak. Things are going to get much, much worse in 2009.

With rents falling and the banks forcing cash-strapped landlords to sell rental properties, there will be a wave of forced sales in 2009. This will push house prices even lower than most pessimists expect.

Ireland could be forced to leave the eurozone

While the euro at close to parity against sterling is great news for shoppers heading North to Newry, it is catastrophic for Irish exporters.

Britain remains our largest market, purchasing almost a fifth of our exports, including most of our indigenous exports.

With Britain already in the grip of the worst economic downturn since the Second World War, the last thing Irish exporters need is the euro close to parity against sterling. If the euro stays at its current level against sterling beyond the first quarter of 2009, the pressure to leave the eurozone could become irresistible.

The Government will close a number of banks

Having already botched recapitalising the banks once, the Government has to get it right next time.

AIB and Bank of Ireland have to be saved while Irish Life & Permanent and EBS can be merged with one of the larger banks.

That leaves Anglo Irish Bank and Irish Nationwide, both of which are stuffed to the gills with toxic property loans. These will both have to be closed and their loans transferred to a "bad bank".

The Government will reform the pension system

Public sector pensions will be reined back to free up resources to plug the €30bn hole in private pensions.

Unemployment will continue to rise

The imminent closure of Dell's Limerick plant will only be the first high-profile factory closure in 2009 as a combination of the economic downturn and an over-valued exchange rate send unemployment soaring to levels last seen in the early 1990s.


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