The sharp economic downturn has left the State in an effective recession, but a recovery will be under way by the end of next year, according to the latest forecast from the Economic & Social Research Institute.
The analysis comes as the spate of job losses in the high-tech sector continued with the announcement yesterday that the phone and pager-maker Celestica is to cut 450 staff from its operation at Swords, Co Dublin, from December.
However, in a more positive assessment of the economic outlook, the ESRI also says the economic slowdown will not last as long as it feared in the immediate aftermath of the September 11th attacks on New York and Washington, when it published its medium-term review.
Mr Danny McCoy, author of the institute's latest quarterly bulletin - which is published today - warns that the slowing economy and the collapse in tax revenues mean that the Government must be cautious in next month's Budget.
He says the economy is already in what he describes as a "growth" recession, where the rate of economic growth is less than that normally expected: "The prospects for 2002 are extremely uncertain, but we are pencilling in a recovery in the US and then Ireland in the second half of the year."
He added that this recovery was more likely given that the dollar and stockmarkets did not collapse following the terrorist attacks and since central banks had cut interest rates.
However, the institute had also been pencilling in a recovery in 2001, which is now out of the question. "It is still possible that things will be far worse, and possibly worse than previous forecasts, if consumer confidence were to collapse, say, as the result of further attacks", Mr McCoy admitted.
Meanwhile, Celestica blamed its redundancy plans, revealed to staff at a meeting yesterday, on the cancellation of a major contract by Motorola. About 500 staff will remain with the company.
This development followed the loss of 1,200 jobs throughout the State on Thursday and is a further setback to the north Co Dublin economy, where more than 2,000 Aer Lingus workers stand to lose their jobs. Doubts also surround jobs at FLS Aerospace, the former TEAM Aer Lingus, which said last Friday that it was cutting capacity.
As the slowdown bites, the ESRI is now predicting that growth in Gross National Product (GNP) will average 4.9 per cent this year, down from 6 per cent in its last forecasts. However, this hides very large variations when the figures are examined on a quarterly basis - from 11.6 per cent at the beginning of the year to 0.5 per cent in the last three months. GNP would then decline to 2.6 per cent on average over 2002, again hiding large quarterly variations of from 1 per cent to 4 per cent.
Mr McCoy is optimistic that if the recovery comes next year unemployment will only rise a little - averaging 4.2 per cent next year as against 3.8 per cent this year: "But if there is no recovery in 2002, then all bets are off." He insisted that there should not be a knee-jerk reaction to the slowdown or to the collapse in the Exchequer finances.
The ESRI is continuing to urge a so-called neutral Budget; this would allow for some £500 million in tax cuts to permit index-linking and £400 million in social welfare increases to keep up with wage growth. If the Minister for Finance keeps to these targets and limits day-to-day spending increases to just over 7 per cent, it would means borrowing of £500 million next year.
However, larger-scale spending at levels even close to the more than 20 per cent of this year, or bigger tax cuts or spending increases in the Budget would raise the borrowing requirement considerably.
In an article attached to the ESRI bulletin, Dr Anthony Leddin, of the University of Limerick, argues that pay is not flexible enough and that continued high demand could ensure that the recession is long-lived and difficult to get out of.