The Economic and Social Research Institute has said there is scope for further pay cuts in the public sector.
In its latest quarterly study, the ESRI forecasts that the economy will contract by 9% this year and a further 2.3% in 2010.
It predicts that unemployment could exceed 16% next year.
Read the ESRI's Quarterly Economic Commentary
Unemployment among foreign-national workers has risen sizeably, particularly compared to Irish workers, but a substantial number are choosing to remain in Ireland.
ESRI authors Alan Barrett, Ide Kearney and Jean Goggin say that while the economy may stop contracting in mid-2010, the return to growth will be 'anaemic'.
Unemployment will average 12.5% this year soaring to over 16% in 2010, they say.
However, the grim report is not as bad as earlier forecasts, due to an estimated 40,000 people emigrating and others withdrawing from the labour force, possibly into education.
On pay, the ESRI says there is scope for further public sector pay cuts, which were preferable to cutting jobs or services.
It concluded that the recession would last until the end of next year.
Public sector unions have rejected the findings of the ESRI report.
SIPTU General Secretary Jack O'Connor said the ESRI had become a 'mouthpiece' for the policies of the establishment.
In a statement, he said pay cuts will solve nothing. 'They will actually exacerbate the downward trend by further reinforcing the deflationary spiral', he said.
Speaking on RTÉ's Morning Ireland, Public Service Executive Union General Secretary Tom Geraghty said public servants, who are already paying the pension levy, should not be expected to solely bear the burden of expenditure cuts.
The Teachers' Union of Ireland has called the ESRI pay cut recommendation 'ludicrous'.
The TUI says that public sector pay and conditions cannot be used as a punching bag as the country works towards economic recovery.
The public sector has already been completely asset stripped over the last 12 months, it says, and described any further pay cuts as 'unacceptable'.
