Jobless will jump to 8% next year, says ESRI

RECESSION DEEPENS:UNEMPLOYMENT WILL jump to a rate of 8 per cent next year, with about 180,000 people predicted to be out of work in 2009 as the recession deepens, the Economic and Social Research Institute (ESRI) has warned.

In what is one of the grimmest statements on 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 downwards its previous forecasts.

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, but it cautioned that the ongoing crisis in the financial markets could spark a further unravelling of the Irish economy.

"Rising unemployment, rising debt, a return to emigration and the prospect of a relatively prolonged recession mean that the economy faces considerable challenges over the next 18 months," the authors of the ESRI quarterly commentary note.

The forecasting body paints a particularly sombre picture of the jobs market. A jobless rate of 8 per cent would mean that the number of people who are unemployed will reach about 178,000 next year. This is some 40,000 more than the expected average number of unemployed people this year, when the unemployment rate is expected to reach 6.1 per cent.

The total number of people in employment will fall by 14,000 this year and by 47,000 next year, while the deteriorating jobs market will see about 30,000 people leave the State. Meanwhile, there will be "significant downward pressure" on the earnings of workers who are not covered by social partnership agreements.

Fine Gael finance spokesman Richard Bruton said the increase in unemployment would wipe out the reductions made in the proportion of jobless people over the last decade, while Labour Party finance spokeswoman Joan Burton described the unemployment forecast as "alarming".

The ESRI's latest forecasts reflect the extent to which the downturn has accelerated. In June, it forecast that the contraction would be just 0.4 per cent in 2008 and bounce back with growth of 1.9 per cent in 2009.

The gloomier forecast follows a steep drop in tax receipts collected by the State in the third quarter, which was in turn caused by the housing market collapse and a slowdown in consumer spending.

The decline in the Irish economy has been sharp and sudden to an unprecedented degree. The economy grew by 4.5 per cent in 2007. The last time GNP went into decline over a full year was in 1983.

"The downturn is going to be more prolonged than we had previously thought," said Dr Alan Barrett, ESRI senior research officer.

Its forecasts assume that there will be either no economic growth or only sluggish growth in Ireland's trading partners in 2009, but they do not factor in the spillover effects of any escalation in the banking sector upheaval.

"Almost by definition, you cannot forecast a catastrophe," Mr Barrett said. "On the balance of probabilities, it is more likely that this is an optimistic forecast."