Faster than expected job losses in the first quarter and an "unhelpful cocktail of factors” of economic problems has prompted Goodbody Stockbrokers to halve its growth forecasts in its latest economic commentary.
Goodbody economist Dermot O'Leary has cut his GDP growth forecast to just 1.1 per cent compared with the 2.3 per cent previously estimate in January.
Speaking to
The Irish Timeshe said the live register showed that the number of people signing on for unemployment assistance was growing at its fastest rate since 1975.
"This is a sudden change and then you look at the recent profit warning from recruiters CPL and you can see that things are changing on the ground quite quickly", he said. Goodbody now expects unemployment to reach 6.6 per cent this year based on an assumption that net migration halves.
The tightening jobs market was hitting consumer confidence he said leading Goodbody to revise down its consumer spending growth forecast to just 1.6 per cent, compared with an expectation of 3 per cent earlier this year.
Retail sales data from the Central Statistics Office due to be published on Friday will give a further indication of consumer confidence. He said lower consumer confidence was evident in an 8 per cent fall in car sales and a deceleration in spending growth on credit cards.
With talks on a new pay agreement set to begin tomorrow, Mr O'Leary said tough decisions would have to be taken.
"Certainly we are looking at a pay deal below with an upper limit in the region of 3.5 per cent. We are in the process of rebalancing the economy and the consequences of not controlling Government spending in the context of the wage talks would be quite serious."
With no "monetary levers" available Mr O'Leary said Government should instead look at accelerating the National Development Plan to invigorate the economy.
"While this will come at the expense of larger than desired budget deficits, it is a short-term cost of both smoothing the cycle and increasing the productive capacity of the Irish economy in the medium-term."
Within that unhelpful cocktail was an "appreciating currency, persistent inflation pressures, [and] an international credit crisis", he said.
Although Mr O'Leary still expects growth to pick up in 2009 his forecasts here too have been revised down to 2 per cent, from 2.5 per cent. The main reason for this was the ongoing problems in the property market.
Although housing affordability was increasing as prices fall, this was coming with the caveat that banks were tightening their lending requirements.
As a result Goodbody has revised down its estimates for housing completions this year and next to 48,000 and 35,000 respectively, compared with earlier forecasts of 50,000 and 40,000.
He pointed to the 68 per cent year-on-year fall in housing registrations in the first quarter as an example of the lack of appetite for new construction projects.
The construction slowdown was now extending to one-off housing which had been holding up quite well, he added. The contagion is expected to spread to the commercial property sector in 2009 when Mr O'Leary expects it to contract.
