Economist Jim Power has today predicted a 45% drop in house prices from their peak in 2006 and says any recovery in the Irish economy is unlikely before 2010.
He said that if the sub-prime crisis in the US had not happened, this adjustment would not have been as severe.
'When the sub-prime crisis is behind us in a number of years time, demand should come back to the markets when liquidity returns', he stated.
In his Quarterly Economic Outlook for Friends First, Mr Power says that while 2008 has been challenging, with consumer spending weakening significantly, he predicts that 2009 will pose even more difficulties, with little chance of confidence returning before 2010.
He says the drivers of the current weakness are the ending of the residential property boom, rising oil prices, food inflation and the global credit crunch.
The economist says that the consumer is no longer a driver of the economy here and is actually moving into a 'period of serious retrenchment' that is set to last for the foreseeable future.
He says that consumer confidence is being hit by rising interest rates, rising oil and food prices, the 'exorbitant' cost of living, a weakening housing market, a market crash, soaring unemployment and a tightening of credit availability. 'All these factors look set to get considerably worse before they get better,' he states.
However, Mr Power says that the economy is not returning to the 'dark days of the 80s' and says that with the correct fiscal response from the Government, the economy can emerge from its present troubles. He welcomed the recent budget measures from Taoiseach Brian Cowen but warned that tougher decisions will have to be made next year.
The economic outlook predicts that global liquidity issues will persist. The 'irrational' ECB decision to increase interest rates recently is imposing 'considerable' pressures on both mortgage lenders and borrowers.
He says the economy is still seeing the effects of the sub-prime crisis in the US, and will continue to do so for several years.
The economist also says that pay restraint in the public sector is warranted, but the suggestion by the SFA that the minimum wage be reduced by €1 an hour, is naive.
