The Central Bank has forecast that the country's economy will contract by almost 7% this year.
This is a much gloomier forecast than its January prediction when it had said that the economy would slow by 4.7%.
In its latest quarterly bulletin, the Central Bank says the country is experiencing an unprecedented slowdown in output after the earlier unsustainable construction-driven survey in activity which peaked in 2007.
It adds that the exceptionally difficult global economic and financial conditions are making the Irish situation worse.
It predicts that the downturn in activity is set to continue next year with a further contraction of 3%. This means that economic growth is set to fall by over 12% from 2008 to 2010, which will result in a broadly similar fall in the standard of living for everyone in the country.
The Central Bank says that domestic demand is set to decline by 10%, with about half of this decrease due to the contraction in the housing market. It says it is looking likely that about 18,000 housing units will be built this year, a decline of about two thirds from last year's total of about 52,000 units.
This is set to decrease further in 2010 when just 12,000 units will be built. As a result, the share of housing in Irish GDP is set to decline to about 3.7% of GDP next year. This is in sharp contrast to when it accounted for 12.7% of total GDP in 2006.
The bank is also predicting 'significant' falls in the volume of exports both this year and next, while unemployment is set to rise to about 14.5% by 2010.
Against this difficult background, the Central Bank says it is crucial that the country moves quickly and credibly to confront the challenges it faces and charts a path that will ensure a sustainable recovery in growth.
Ahead of Tuesday's supplementary Budget, the Central Bank says experience has shown that expenditure-based measures are more successful than ones which are predominantly tax-based. It says the Finance Minister has scope to make cuts in Government spending, and also says that a broadening of the tax base is required.
The Central Bank also says the Government could start charging for public services that are delivered free at the moment.
On competitiveness, the bank urges a changed approach to wages and welcomes recent moves many firms have taken to reduce their costs, including wage cuts.
