The Governor of the Central Bank has said any economic recovery is unlikely to take hold in Ireland until 2011.
John Hurley was speaking as the bank published its annual report for 2008. He said it now looked as if the economy would shrink by 8.3% this year and 3% next year. The 2009 forecast is slightly better than the 9% drop mentioned in the annual report.
He also forecast that the unemployment rate would average 13% this year and 15% next year, warning that the rise would not begin to reverse until an economic recovery had gained some momentum.
The Governor, who sits in the European Central Bank's rate-setting council, indicated that interest rates would remain low for some time, saying they should be increased only when there were clear signs a recovery had begun.
Mr Hurley also said the deterioration in the public finances was a cause for serious concern, and it was crucial that targets for addressing this agreed with the European Commission for 2013 should be met. He added that while it was necessary to broaden the tax base, the focus of any Government measures should be on cutting public spending.
The Governor said sentiment among investors had improved in recent months, but financial markets remained 'fragile'. He said the Irish economy had lost competitiveness in recent years, but many companies had taken action to cut costs.
Mr Hurley said that while this had been painful, it was encouraging evidence of the flexibility and realism that was needed. He added that this type of action 'must embrace all sectors of the economy'.
On NAMA, he said the price paid to the banks for transferring assets was a key issue, which must balance value for the taxpayer with restoring the banks' role in the economy. Mr Hurley said that, when the current crisis had passed, the shape of the banking system was likely to be very different, with smaller banks likely to emerge.
He welcomed Government plans to reform the system of financial regulation by setting up a unified structure, and said the way banks were regulated would change. He said regulators would attend more internal bank meetings and would be provided with much more information.