Ireland faces an "unusually high degree" of uncertainty because of deteriorating conditions in the international economy and a correction in the construction sector will continue this year, rating agency Moody's has warned.

In separate research, Ulster Bank found that construction activity fell at a substantial rate in January and was at its lowest level since it began a monthly survey of the sector in 2000.

Moody's said in its annual report on Ireland that the Government's Aaa bond rating reflects successful macroeconomic management and a highly competitive, wealthy economy. However, it said the Irish economy is particularly exposed to external risks such as global demand swings and the dollar's weakness.

"Given the close trade and foreign direct investment links with the US, a recession in the US and a forecasted growth slowdown in the UK, Ireland's second most important trading partner, will undoubtedly have a negative impact on growth in Ireland."

While uncertainty in financial markets "could lead to a more profound correction of house prices", Moody's said that a more sustainable rate of housing output and construction will contribute to a more sustainable, though lower, growth path.

Ulster Bank research shows a contraction in housing, commercial and civil engineering activity. "Housing remained the worst performing, as the rate of contraction of activity was again a survey record. Data signalled the sharpest fall of commercial activity since July 2003. Civil engineering activity declined at a moderate rate that was weaker than December."

The activity rate in the sector declined on a composite index to 35.3 last month from 35.7 in December. An index reading below 50 signals a decrease in activity on the previous month.