Economy could shrink by up to 4% in 2009 - Ibec

THE ECONOMY could shrink by as much as 4 per cent next year and up to 10,000 jobs will be lost at multinational firms, according to two new economic forecasts.

The employers' group Ibec said it expected the economy to contract by up to 4 per cent in 2009. The group's economist, Danny McCoy, said that an estimated 100,000 people had left Ireland in 2008.

In its latest economic outlook Ibec said that growth in manufacturing was slowing, sales were falling in the retail sector, global demand was weakening and there was a record increase in the numbers on the Live Register.

NIB economist Ronnie O'Toole said in his latest quarterly commentary that exports would come under severe pressure next year and that multinationals would close plants and downsize over the next 12 to 18 months, leading to as many as 10,000 job losses by 2010.

He said the flow of investment into the State would "moderate".

The effects of the recession would be felt in 2009, which is likely to be the harshest year for a quarter of a century, he said.

"The negative impact of the global slowdown on an open economy such as Ireland is likely to be severe," said Mr O'Toole.

He expects gross domestic product, the value of all the goods and services produced in the State, to contract by 1.5 per cent this year and by 2.8 per cent in 2009.

He said that unemployment would rise to an average of 8 per cent next year. Coupled with increases in income tax, this would curb household spending in 2009.

Mr O'Toole said the 2010 and 2011 budgets would "have to be harsher than planned" and that the State had little flexibility for fiscal stimulus due to the deterioration in the public finances.

He said the recession showed the dangers of over-relying on tax receipts from stamp duty and suggested that the Government examine taxes on property services such as water charges.

The State could raise about €400 million from water charges if similar measures being implemented in Northern Ireland next year were introduced here, according to Mr O'Toole.

He expects the European Central Bank to cut rates by another percentage point to 2.25 per cent by next summer, with a half-point cut expected next month.