The Economic and Social Research Institute has forecast that the economy may return to a very modest level of growth at the end of next year, but overall the economy will continue to decline.
In its latest Quarterly Review, it recommends that child benefit be cut by 20% as part of the Government's targeted savings of €4bn outlined in the April Budget but it recommends that welfare payments be frozen rather than cut.
The ESRI says that sticking with the €4bn savings target will be necessary just to stabilise Government finances but it will not reduce the deficit.
It has calculated that interest payments on Ireland's growing national debt will come to €3bn or 10% of total tax revenue this year.
The institute is broadly sticking with forecasts that the economy, measured by GDP, will shrink by 7.2% this year and 1.1% next year, with the possibility of a return to only a modest level of growth towards the end of 2010.
The ESRI is forecasting unemployment to peak at 15% next year, which is slightly less pessimistic than its earlier forecasts.
On housing, the ESRI is forecasting that ultimately prices may fall 50% from their peak.
It points out a mismatch between available wage data and anecdotal suggestions of widespread wage cuts and says there is a question mark over what extent Ireland's competitiveness is really getting a boost.
It also points out that recent falls in the consumer price index are not having as big an effect for those on lower incomes and recommends that welfare rates be frozen rather than cut in the Budget.
But it does recommend a 20% cut in child benefit before bringing those payments into the tax system as well as further cuts in public sector pay.
The new Governor of the Central Bank has said retaining wage competitiveness in order to sustain jobs should be the priority, even if it means wage cuts.
In his first public comments in his new role, Professor Patrick Honohan told an ESRI conference that the Irish wages trend was worrying.
Professor Honohan also said that recapitalising the banks would be a costly exercise and would add to the State's net debt.
He said that while a strategy for the banks should minimise the cost to the State in the long term, it would not be wise to 'skimp' on the restructuring, as banks were crucial for sustaining growth.
