Consumer confidence is unlikely to return before 2010 when the housing readjustment will most likely have run its course, Friends First chief economist Jim Power said today.
In his latest quarterly economic outlook, Mr Power said the economic "party is now clearly over" and it would take until 2010 at the earliest for house prices to fall to more sustainable levels, oil prices reduce and the external economic cycle to improve.
As figures released today by the Central Statistics Office showed retail sales recorded their biggest annual drop in more than 21 years in the year to May, Mr Power said consumers had ceased to be the driver of the economy and were moving into a period of caution and retrenchment.
"Consumer confidence is being destroyed by rising interest rates, rising oil and food prices, an exorbitant cost of living, a housing market that is weakening steadily, an Irish equity market crash, soaring unemployment and a sharp tightening of credit availability. All of these factors look set to get considerably worse before they get better," he said.
The recent decision by the European Central Bank to increase interest rates was "irrational" because it was imposing considerable pressures on mortgage lenders and borrowers, he added.
No rapid recovery in equity markets is on the horizon, according to Mr Power.
"International investors have ended their love affair with the Irish market and have clearly decided that on a 'risk – reward' basis there are now less risky markets, offering greater potential returns. Irish investors are also reducing their exposure to the market - against this backdrop the Irish market can certainly go lower".
However, he rejected suggestions that the Irish economy was returning to a 1980s era, pointing out that the "fundamentals of the economy are stronger than they were two decades ago."
The key vulnerability is that "excessive public sector debt in the 1980s has been replaced with excessive personal sector debt today", he said.
