The Economic and Social Research Institute has described the Covid-19 outbreak as a major shock to economic life which is unprecedented in modern times.
In its latest Quarterly Economic Commentary, the think tank urges the Government to invest in social housing and retrofitting homes to stimulate the economy.
The ESRI said the Government should stimulate activity in the economy, which it expects to be "very fragile" in the short to medium term.
It expects unemployment this year to average 17%.
The ESRI believes the downturn prompted by Covid-19 is a good time to catch up with the underlying demand for housing.
It also recommends projects like retrofitting homes to help Ireland reach its climate goals.
But it warns this necessary investment will increase the deficit, which it expects to be around €27 billion this year. So too will any extension to the Pandemic Unemployment Payments.
It found that household savings may double during the pandemic, which could deliver a boost to the economy, once a recovery begins.
It warns that supports for business will be difficult for Government to get right.
Difficult choices will have to be made and not all firms will survive, it said.
Kieran McQuinn, research professor with the ESRI, told RTÉ's Morning Ireland that the key objective for Government in the short-term is to stabilise the economy.
The ESRI is advising no immediate change to the Pandemic Unemployment Payment as Mr McQuinn said it has played a very important role in supporting incomes and has cushioned the fall in disposable incomes.
He said over time, the PUP and business supports will play an important role in how the Government mitigates the effects of the crisis on the economy, but over time will need to be looked at.
In its latest quarterly economic commentary for summer 2020, the ESRI warns that in a best to middle case situation the economy risks contracting by 9-12% and unemployment reaching between 10-17% .
In a worst case situation, where a second surge of the virus emerges, the economy will contract by up to 17% and unemployment levels will hit 20% over a consistent period of time.
The ESRI is urging investment over cuts in the short term, as this will reduce the "scale and impact" of the crisis on the domestic economy over the next 18 months.
Mr McQuinn said the domestic economy went into the crisis in a strong position.