The head of EU finance ministers, Jean-Claude Juncker, has described the economic situation in Ireland as 'grave'.

Following a meeting with EU finance ministers in Prague, Mr Juncker told journalists that the Irish Government 'is aware of the grave problem' facing the nation.

He added that Finance Minister Brian Lenihan 'let us know that the Government would announce additional measures in the coming weeks.'

He was responding to today's Central Bank forecast that the country's economic growth will contract by almost 7% this year.

This is a much gloomier forecast than January's prediction when it had said that the economy would slow by 4.7%.

unprecedented contraction

In its latest quarterly bulletin, the Central Bank says Ireland is experiencing an unprecedented contraction in output after the earlier unsustainable construction-driven survey in activity which peaked in 2007.

It adds that the exceptionally difficult global economic and financial conditions are making the Irish situation worse.

It predicts that the downturn in activity is set to continue next year and predicts a further contraction of 3%.

This means that economic growth is set to fall by over 12% from 2008 to 2010, which will result in a broadly similar fall in the standard of living for everyone in Ireland.

The Central Bank says that domestic demand is set to decline by 10% with about half of this decline due to the contraction in the housing market.