The Irish economy is set to grow at its slowest pace for two decades this year.
The Economic and Social Research Institute (ESRI) has revised downwards its forecast for economic growth in 2008 to just 1.6 per cent, due mainly to the severity of the contraction in house building.
It says there will be no increase in employment this year, while the numbers out of work are projected to rise by 33,000 to 135,000 in 2008.
Alan Barrett of the ESRI said that the downwards forecast was due to the contraction in the housing market coupled with the turmoil in international markets and the knock-on effects of the difficulties in the US economy.
Alan Barrett of the ESRI
Mr Barrett said although 2008 would be difficult the ERSI expects the economy to rebound with a 3 per cent growth rate in 2009.
Speaking on RTÉ's Morning Irelandhe said: "The problem is even though the economy is going to pick up in 2009, the 3 per cent growth rate is a long way below what we were used to.
"We're getting slightly concerned that the public finances are on a trajectory where we could see a deficit over the next couple of years.
"The Government needs to start conditioning people -what we need now is a few years of restraint on public expenditure," he said.
The ESRI forecasts that an exchequer surplus of €2.3 billion in 2006 will be transformed into an deficit of €7.5 billion by 2009. This would be a deterioration of almost €10 billion in the exchequer's annual position in just three years.
The 1.6 per cent growth rate is also well below the 2.8 per cent real expansion rate projected for the economy by Minister for Finance Brian Cowen in this year's budget.
Fine Gael finance spokesman Richard Bruton said called on Mr Cowen to explain how he intends to confront Government waste and introduce reforms necessary to put the public finances back on a sustainable footing.
Mr Bruton said the Minister must do this without "knee-jerk cutbacks in front-line services and vital infrastructure programmes".