The employers' representative body IBEC says the second half of 2008 has been a calamity for the Irish economy and that it has profound implications for business and trading conditions.
In a downbeat assessment, IBEC says it believes the economy will contract by as much as 4% next year.
IBEC's Danny McCoy warns that living standards will fall significantly and that the drop in living standards could be prolonged for a number of years.
The latest economic outlook from employers group IBEC's paints a bleak picture, with slowing growth in manufacturing falling sales in the retail sector, weak global demand and a record increase in the numbers on the Live Register.
IBEC says the the only silver lining is the steady deceleration in the rate of inflation. It says that Government policy should be directed towards enhancing productivity and controlling costs.
IBEC says that measures announced in the October Budget are inadequate given the sharp domestic economic downturn, which has been further exacerbated by international events. It says that both business and consumers are faced with painful adjustments as new economic realities dawn.
Calamity for Irish economy
IBEC's Danny McCoy says that the second half of 2008 is becoming a 'calamity' for both the Irish and world economies. He says the events of the last few weeks and the near collapse of the global financial system are really starting to hit businesses - both big and small - in terms of access to credit and expectations of future trading conditions.
He says the only good news on the economic front - falling oil prices and decreasing interest rates - have only come as a result of the turbulence on the world economy.
Mr McCoy predicts that the economy will contract by 2% this year with an even greater fall of 4% in 2009 and he stated that he has never seen conditions like these before.
However, he says that the various stimulus packages announced by leading economic powers around the world will spill over into the Irish economy, which was always going to have to correct itself from its over-reliance on the construction industry.
Mr McCoy says that people will have to face up to the reality of a downward shift in our living standards and especially our cost base. He says the expected significant fall in living standards may continue for a number of years and adds that it will be very painful.
Mr McCoy says that while the October budget was a good start to kickstarting the Irish economy, he says it was 'too light' in terms of investment curtailment and was far too optimistic in its growth predictions.
He says that more action will be needed before the next scheduled budget in December 2009 and says that whether it comes in the form of a 'min-budget' or not, the Government will have to take decisive action.
On the employment front, the economist says that some parts of the country are heading towards an increase of 100% on the Live Register, which reflects the construction slowdown.
He says that the unemployment rate will hit 8% but adds that it could be much higher if the current labour force stays in the country. He points out that 100,000 are estimated to have left Ireland in 2008. He says that this results in a declining market for Irish businesses.
Worldwide recession to hit Ireland hard
Meanwhile, a report on the economy from National Irish Bank says most of the developed world will slip into recession next year, and the effect on the Irish economy will be severe.
Economist Dr Ronnie O'Toole also predicts that a number of multi-national companies operating in Ireland will announce significant plant closures or lay-offs over the next 12-18 months, while the flow of new investments will slow down.
He says unemployment is set to average 8% next year, while rises in income tax will also affect consumer spending. But he expects another 0.5 point cut in ECB interest rates in December, with another two quarter-point cuts by next summer.
The NIB report warns that the world downturn will have a significant impact on exporters, with exports to the UK suffering even more due to the weakness of sterling.
Dr O'Toole says the Government is right to try to bring order to the public finances, and says the next few Budgets will have to increase the tax burden. He calls for a gradual policy of replacing stamp duty with taxes on property services such as water charges.
