The outlook for the economy outlined by the Minister for Finance in his Budget speech was extremely optimistic according to a new forecast by Goodbody Stockbrokers.

The firm is sharply reducing its expectations for the Irish economy in 2009 and does not expect even modest growth to return to the Irish economy until 2010.

They also said that 2010 prospects are 'subject to large uncertainty'.

'Economic projections contained in Budget 2009, we believe, are too optimistic,' economists Dermot O'Leary and Deirdre Ryan said.

Goodbody believes the Budget deficit is likely to breach 8% of GDP next year.

Minister Lenihan said on Tuesday that he expects the economy to shrink by 1.5% next year, as measured by GNP, with GDP contracting by 0.75%.

He said Government is planning on a Budget deficit of 6.5% of GDP next year.

The stockbroker says that the tightening of credit conditions that continue to hamper the construction sector will make it difficult for the economy to improve.

It calls the rapid weakening of labour market conditions 'the most concerning of the recent developments in the Irish economy' and says it is the major reason behind the downgrade of 2009 forecasts.

Goodbody predicts GDP to decline by 4% next year, almost doubling this year's contraction of 2.5%.

Return to 'traditional' banking system touted

The Director of Irish Lending at Anglo Irish Bank has said banking must return to its ‘traditional, old-fashioned’ system of operation.

Speaking at a conference of the Society of Chartered Surveyors in Dublin, Pat Walsh said that with the benefits of hindsight banking should have remained a simple business of accepting deposits and straightforward lending.

Mr Walsh said certain banking sectors had become too aggressive and now ‘the hangover is in full swing’.

He said Anglo Irish Bank was currently engaged in a review of every single loan in its loan book.

However he said he could not comment too much on the health of the bank as it is currently in its closed period ahead of the publication of its results in early December.

But he said Anglo Irish Bank always placed a strict emphasis on cash flow and loan serviceability when deciding on a loan application.

On the subject of the Government's bank guarantee scheme, Mr Walsh said it was a ‘very welcome and necessary initiative’.