GDP GROWTH will slow to 1.3 per cent this year from 5.3 per cent in 2007, according to the latest economic update from AIB Global Treasury.

Activity is expected to remain sluggish in 2009, with GDP forecast at 2.5 per cent, said AIB chief economist John Beggs.

Domestic spending is forecast to contract by 1.7 per cent this year and rise by a meagre 0.1 per cent in 2009, with net external trade the driver of GDP growth for the period, he said.

"Downside risks dominate the global economic landscape, which is faced by a marked tightening of credit conditions, unsettled financial markets, rising commodity prices and a weakened US economy. As a very open economy, Ireland is impacted by this difficult global picture. It is also faced with unfavourable exchange rate movements. Meanwhile, on the domestic front, the housing market is undergoing a marked downward correction which is depressing GDP growth. This backdrop presents a very challenging environment for the Irish economy."

Further evidence of the downturn was highlighted in a new survey by recruitment agency Manpower which found that just 3 per cent of Irish employers are forecasting an increase in their workforce in the second quarter, the third weakest forecast of hiring intentions reported across the globe for this quarter.

The recruitment agency's survey noted that 27 per cent of construction employers said staff numbers had fallen over the 12 months to the end of March, with a further 17 per cent expecting further headcount reductions over the three-month period to the end of June. This sector has the most pessimistic outlook, and the employment outlook is the weakest recorded since the survey began in 2002.

The survey, which polled 686 Irish employers, found that almost a quarter of restaurants and hotels have cut staff numbers in the year to the end of March.