The Economic and Social Research Institute has warned that the Government should refrain from tax cuts in this year's budget and should instead focus on spending to improve the country's infrastructure.
Delivering its quarterly commentary on Friday, the Institute warned that budget spending should be less than half of what was delivered last year.
It said the biggest risk to the Irish economy was a prolonged US slowdown, which would hurt employment prospects and consumer confidence here.
The ESRI warned that the international economic environment was particularly gloomy at present, with stagnant growth in the US, Europe and Japan.
It also predicted a fall in the value of the dollar and of sterling. Given that Irish wages are climbing by about 11%, the ESRI warned that this would lead to a sharp loss of our competitiveness.
The ESRI said the economy was now at a turning point, so the Government must be extra careful in managing its finances.
Given the significant risks ahead, the Institute warned that the Government should not put more than £700m into the economy in this year's budget.
This is less than half of the budget giveaway last year when tax cuts alone were worth £1.2bn and the total budget spending and tax package was over £2bn.
The economy is now at full employment so the Institute wants the Government to concentrate on improving infrastructure rather than frittering money away on tax cuts which are unlikely to attract more workers into the labour force.
