The Economic and Social Research Institute says the cost of providing extra capital to Anglo Irish Bank and Irish Nationwide will have to be included in the national accounts, and will push the government deficit from 11.5% to 19.75% of economic output - by far the highest in the developed world.
The report indicates that 120,000 people will have left Ireland in the two years to next April.
Read more detail on the report here
Meanwhile, the International Monetary Fund has praised the Government's moves to support the banks and tackle the budget deficit, saying they had helped stabilise the economy. Read more on the IMF view here
Spend on training, urges ESRI
The ESRI also says money to tackle long-term unemployment is better spent on training schemes than on building infrastructure.
In its latest quarterly survey of the Irish economy, the ESRI sees little difference to its previous outlook, with the economy broadly flat this year and modest growth next year.
But what has changed is the announcement in March of E12.9 billion of extra capital for Anglo Irish Bank and Irish Nationwide. This injection is by way of promissory note - a type of IOU under which cash can be drawn down over a ten-year period as the institutions require.
The ESRI believes the EU statistics agency Eurostat and other international bodies will want that liability written into the national accounts in full this year. That would have the effect of increasing the government deficit from the department of finance target of 11.5% to almost 20%.
The ESRI also cautions against using infrastructure spending as a job creation mechanism, saying its research suggests that money is better spent on improving workers' skills through training programmes for long-term sustainable results.
Bank figures factored in, says Cowen
Speaking in the US, Taoiseach Brian Cowen said financial markets had already factored in the fact that injections of capital to nationalised Anglo Irish Bank and Irish Nationwide could raise the deficit. But he said that would be a one-off and its exact accounting remained unclear.
'The underlying deficit situation is as planned,' Mr Cowen told RTE's Morning Ireland. He said that, in the US, people felt that Ireland had 'first mover advantage' and had made the right decisions to get through the difficult economic period.
The main opposition parties said the ESRI report indicated the need to make jobs a priority. The Fine Gael spokesman on finance, Michael Noonan said it should set alarm bells ringing that the Government's economic strategy of massive bank bail-outs and fiscal austerity was not enough to get Ireland working again.
The Labour Party spokeswoman Joan Burton said the the Government had been quick to trumpet any sign of economic recovery, but the truth was that there would be no recovery for families until unemployment started to fall.
