ESRI says unemployment will reach 8% next year

Unemployment will jump to a rate of 8 per cent next year, with around 180,000 people predicted to be out of work in 2009 as the recession deepens, the Economic and Social Research Institute (ESRI) warned this morning.

In what is one of the gloomiest outlooks for the economy to date, the ESRI said an "alarming" rise in the number of unemployment benefit claimants on the Live Register and the "disastrous" state of public finances meant it had been forced to revise down its previous forecasts for the economy.

In its quarterly report, the ESRI said higher taxes may be unavoidable if public services are to be maintained in the medium term.

The Government should raise €3 billion through a combination of severe cuts in spending and tax hikes in the Budget, even though these measures will in themselves drag the economy down further into recession.

An unemployment rate of 8 per cent would mean that the number of people who are unemployed will reach around 178,000 next year - some 40,000 more than the expected number of unemployed people in 2008, when the unemployment rate is expected to average at 6.1 per cent.

Meanwhile, the total number of people in employment will fall by 14,000 this year and by 47,000 next year.

The deteriorating jobs market will see around 30,000 people leave the State.

The ESRI now expects that the economy will shrink by 1.3 per cent in terms of gross national product (GNP) this year and 0.7 per cent next year. In June, it forecast that the contraction would be just 0.4 per cent this year and bounce back with growth of 1.9 per cent in 2009.

However, the recession could prove even longer and deeper as a result of the ongoing turmoil in global financial markets, ESRI's senior research officer Alan Barratt said.

It would be prudent for the Government to aim to stabilise the general Government deficit at 5.5 per cent of GDP in Budget 2009, he said.  "We need the public finances to be on a broadly sustainable path."

But as this deficit level would mean that the Budget would have to be one of the toughest of the last quarter century, the Government may settle for running a higher deficit, Mr Barratt said.

"It takes us back to the level of budgets we had in the 1980s," he said. "The deficit is now bigger than we had realised and the recession is likely to be longer."

The Labour Party's finance spokeswoman Joan Burton described the ESRI's jobs predictions as "alarming".

"It is more important than ever that the Government bring forward a jobs strategy to deal with the spiralling problem of unemployment," she said. "If the Dáil can sit all night to rescue the banks, then similarly urgent action should be taken to deal with the jobs crisis."

Fine Gael's finance spokesman Richard Bruton said the ESRI report confirmed that domestic problems were driving the budgetary crisis and not international factors as the Government was insisting.

"The Irish economy is now heading for more than 300,000 people out of work by the end of next year. This recession has been driven by Brian Cowen's reckless budgets over the last four years, and is not simply due
to international factors," he said. "This increase in unemployment would wipe out all the reductions in unemployment made over the last decade."