A new report has forecast that the economy will shrink by 6% this year, hit by a sharp drop in consumer spending.
The report, from Goodbody Stockbrokers, also predicts that the economy will shrink by another 2.5% in 2010, making it the worst recession in the OECD since Finland in the early 1990s.
Goodbody's economic forecast compares with the 4% falls for this year recently predicted by the Government and the Central Bank.
But the report says these figures are becoming more irrelevant as the main question now is whether Ireland can put its public finances in order. Goodbody says short-term forecasts for tax revenue are too optimistic.
If policies are not changed, it estimates that the budget deficit will reach 12% of GDP this year and 13% next year, with total Government debt rising to 87% of economic output by 2013. Goodbody warns that it is 'unknown' whether international bond markets would fund such an increase.
Its report says some unpalatable decisions will have to be made, with increases in taxes as well as spending cuts. Goodbody says social welfare spending is an area 'too big to be ignored', and says it could be possible to cut payments without reducing their real value, due to falling prices. It believes consumer prices will fall by around 3% this year.
Goodbody also believes the Government may have to inject more money into the banks, putting the total cost at €9 billion. It believes the banks will incur bad debts of €28 billion over three years.
