Economic growth is predicted to fall to 2% next year and it may not bounce back to normal growth levels until 2010.
A report from Davy stockbrokers warns that house prices have much further to fall and that unemployment will rise to 7% next year.
Davy says it cut its growth forecast for the Irish economy because conditions continue to get worse for consumers, as the labour market weakens it is harder to get credit, and because of a 'negative wealth effect'.
Davy now expects GNP growth of 1% this year, and for 2009 of 2%, down from a previous forecast of 3.4%.
On housing, Davy does not think 2008 will see building bottom out, but it has hugely reduced the number of house completions it expects to see next year - from 40,000 to 25,000.
It says house prices will fall by 10.7% over the next year, and by 7.2% in 2009.
It also forecasts that non-residential building will fall by 10% next year.
Davy says unemployment will have reached 7% by the end of next year from a current level of 5.5%.