The Economics and Social Research Institute (ESRI) has warned that the high rate of job losses in recent weeks will continue over the next 18 months.
In its medium-term review of the economy, the economic think-tank predicts that unemployment will peak at 6% next year, with the traditional manufacturing sector likely to be worst hit by the slowdown.
But it forecasts improved economic circumstances in 2005, with growth averaging 5% for the following five years.
In its report the ESRI says that inappropriate tax and spending policies by the Government over the last two years have not helped the economy.
However, it says that the primary reason for our current difficulties is the sluggish international and particularly European economy.
In that context it says the Government can only provide 'limited insulation' against 'economic tribulations'.
The lead author of the report, Professor John Fitzgerald said that there is no scope for further tax cuts from the Government in the short term.
But from 2005, and with two years to go before a general election must be called, the public finances should have improved to the extent that spending on public services can increase or taxes can be cut, according to the report.
This relatively upbeat outlook does assume, however, that the international economy picks up in 2005, and in the mean time the Government addresses the price and wage increases undermining Irish competitiveness.