The economy is on course for a dramatic slowdown, a leading international financial services player has predicted. In a report entitled Irish Stew, global banking heavyweight Credit Suisse has painted one of the most bearish pictures of the State's economic future to emerge so far this year.

The bank predicts growth in gross domestic product (GDP) - the value of goods and services produced in the State each year - will fall to 3 per cent this year, from 6 per cent in 2006. This view is based on its belief that the two main drivers of the economy - consumer spending and investment - are becoming "increasingly fragile".

Although Irish commentators have warned of late that the economy is losing some steam, the consensus here is that growth will be close to 5 per cent this year, considerably higher than Credit Suisse's estimate.

The Economic and Social Research Institute (ESRI) recently projected growth of 5.4 per cent for 2007, while the Central Bank has forecast 5 per cent.

Among private forecasters, Davy Stockbrokers expects 4.5 per cent growth this year, although it predicts this will fall to 3 per cent in 2008.

One of the main causes for concern highlighted in the Credit Suisse report is the impact of rising interest rates on consumer spending and investment growth.

It predicts that the export growth required to compensate for this slowdown in domestic demand is unlikely, as Ireland's competitiveness has deteriorated significantly in recent years.

By European standards, a disproportionately large percentage of Irish mortgage debt is tied to variable rather than fixed rates, with the result that Irish borrowers are more vulnerable to ECB rate rises.

Credit Suisse predicts that consumer spending will slow significantly as higher interest rates filter through, and points out that consumer confidence has already begun to sag.

House prices are currently almost 10 times average earnings, which is "extremely high" by international standards. According to the report, the cooling off of house price growth, already under way, will affect jobs in construction. Any slowdown in this sector is likely to affect growth, as construction investment now exceeds 20 per cent of GDP.

However, the report does not appear to take account of the impetus that the infrastructural projects set out in the National Development Plan is expected to provide to the construction sector.