The substantial fall-off in house building has resulted in the Government issuing a revised economic forecast, which cuts expected economic growth to about a half percentage point this year.
Publishing the new forecast this evening, the Department of Finance said the short-term outlook for the economy had “changed substantially” since last December.
But it said that apart from the construction sector, the rest of the economy is performing relatively well in the face of adverse international conditions, with growth a little above 4 per cent.
“Overall growth is now expected to be about ½ per cent this year. This takes account of an estimated drag of around 4 percentage points from the very substantial negative adjustment in house building, where the level of activity is weaker than assumed at Budget time,” the forecast stated.
Output of housing units will fall to about 43,000 this year, with a further decline in completions, although not to the same extent, next year.
After 2009, the housing sector is expected to start returning to a “more sustainable” level of output of about 50,000 units per annum.
“A modest pick-up is expected in overall growth next year – perhaps to around 2 ¼ per cent. It is expected that as output in the housing area returns towards sustainable levels, trend growth of about 4 per cent per annum can be achieved over the medium term, the forecast said.
Employment growth will continue to moderate for the rest of the year, so that for the year as a whole it will grow by 13,000 (0.6 per cent). Unemployment will average 5.8 per cent.
The forecast for consumer spending growth is now 2.3 per cent for the year as a whole.
The Department of Finance will publish revised three-year forecasts in the pre-Budget outlook in October.