Ulster Bank has lowered its growth forecast for the Irish economy this year, saying the outlook for the domestic and international economies has deteriorated.
The bank now expects gross national product (GNP) to expand by just 0.5%, down from its previous 2% forecast.
Its gloomy forecast came after a survey of activity in the manufacturing sector fell to a record low in April as business conditions deteriorated.
The NCB Purchasing Managers' Index (PMI) fell to 44.7, the lowest level in the report's 10-year history. Any figure below 50 means activity shrank, and the PMI has now been below the 50 mark for five months in a row.
NCB said the volume of new orders fell at a record rate in April - this part of the index recorded 42.6 - while new export orders dropped at the fastest rate for almost five years. Companies said the strong euro against sterling, greater competition from abroad and weaker world economic conditions contributed to the drop in export work.
The employment part of the index fell to 45.5. Employment has also been falling for the last five months. Firms reported that costs inflation accelerated sharply, with higher prices for metals, oil and plastics. The costs index jumped from 60.9 in March to 67.8 in April. Prices charged by firms rose in response, though at a more modest rate of 52.7.
In its report, Ulster Bank said that the while the worst of the financial crisis seemed to be over, banks and economies were still struggling to cope with its consequences - higher interest rates and tighter credit.
The bank said house prices had further to fall, but could level off later in the year, leaving them down 5% by the end of 2008. It reduced its forecast for house building to 42,500 in both 2008 and 2009.
It added that it did not expect any change in euro zone interest rates this year, and warned that banks could pass higher borrowing costs on with further increases in mortgage rates.
