The Economic and Social Research Institute has warned that economic output will fall dramatically next year and that unemployment will reach 10% of the labour force.
Speaking on RTÉ Morning Ireland Dr Alan Barrett of the ESRI said if the number of people leaving the country was not as high as it predicted, unemployment levels would be higher.
In one of its gloomiest ever quarterly economic commentaries, the ESRI said that it will be very difficult for the Government to afford the national pay deal in these circumstances and that pay cuts in the public sector should be considered instead.
Its latest Quarterly Economic Report warns of a 4.6% fall in activity in 2009, which would be the largest annual slump in economic activity every recorded. (Read the Executive Summary)
The ESRI forecast suggests that 117,000 jobs will be wiped out, unemployment will go above 10%, and net migration will soar to 50,000 people, which would be one of the largest annual migration totals ever recorded.
The contraction in activity will plunge public finances deeply into deficit and Government borrowing will rise to almost €17bn in 2009, it says.
The general Government deficit will exceed 10% of GDP, close to four times the EU borrowing limit, and the public debt burden will have doubled in two years.
It also warns of the need for further tax increases.
Elsewhere, the Labour Party has called on the Government to abandon the.5% rise in VAT introduced in the Budget, in a bid to help the economy.
Also speaking on Morning Ireland, Joan Burton described the VAT rise as disastrous and claimed it was sending shoppers to Northern Ireland.
