The ESRI says that tax increases and 'severe spending cuts' are necessary to stabilise the budget deficit.
In its latest quarterly commentary, the ESRI has also downgraded its forecast for the economy, predicting that the recession will continue until at least the end of next year.
The latest quarterly commentary from the Economic and Social Research Institute forecasts that GNP will contract by 1.3% in 2008, down from its summer forecast of a fall of 0.4%. However, it has revised its prediction for 2009 more severely and now predicts that GNP will contract by 0.7% next year.
The economic think-tank says that given the economic turmoil it needs to emphasise the uncertainty surrounding the forecasts and the possibility that further downward revisions may be applied.
The ESRI says that the report has been prepared at a time when the world's financial markets are in a state of unprecedented turmoil, to a greater degree than at any time since the current spell began.
'Other economic news within Ireland which has impacted upon our analysis includes disastrous third quarter Exchequer returns and an alarming rise in the numbers on the Live Register,' the think tank explains.
The ESRI says that its forecast for a recession in 2008 is still mainly due to the housing downturn. However, it is now also predicting a fall in consumption.
'For 2009, a downturn in commercial building is expected, along with a fall in the Government's consumption of goods and services,' today's report says. It adds that weak international conditions both this year and next leave little scope for external demand to fill the gap left by falling domestic demand.
On the jobs front, the ESRI says that employment is expected to fall this year by 14,000 and by 47,000 next year. It says the rate of unemployment is expected to average 6.1% in 2008 and to just to an average of 8% in 2009.
Based on finance ministry figures, the ESRI says it appears that the general government deficit will be 5.5% this year.
'Our forecasts include a budget for 2009 in which this same deficit holds in 2009. It should be noted that even stabilising the deficit will still require severe cuts in spending and tax increases, which will themselves contribute to the economic downturn,' it warns.
