Irish growth will fall substantially next year as the first global recession in more than 20 years slows the world economy, according to the Organisation for Economic Co-operation and Development.
The OECD has also warned that a combination of continued wage growth and a strong rise in the value of the euro represents the greatest risk to the Republic's capacity to capitalise on eventual economic recovery.
But IDA Ireland's chief executive, Mr Sean Dorgan, is confident Ireland can continue to attract inward investment and jobs. Mr Dorgan said yesterday the pipeline for new projects was healthier than the circumstances might suggest.
"There are a number of significant projects in our pipeline. We haven't won them yet but we're in serious play and we're working very hard at it. We will have business to announce over the next six months," he said.
According to the OECD's preliminary economic review, published yesterday, the terrorist attacks on September 11th have ensured that the US, Japan and Germany are all in or close to recession and none will pick up before the middle of next year.
The Irish economy has also been hard hit but will bounce back strongly in 2003 so long as the Government continues to invest in infrastructure and pay rises are moderate.
The Paris-based think-tank is pencilling in Irish growth in terms of Gross Domestic Product of 6.4 per cent in 2003 from 3.7 per cent next year and around 5.6 per cent in 2001, although unemployment will have risen significantly in the meantime. In May it predicted that Irish growth would reach 7.75 per cent this year.
It expects unemployment to rise as high as 5.25 per cent next year - exceeding the Department of Finance's average expectation of 4.5 per cent - and to remain there in 2003. Unemployment is currently running at 3.9 per cent.
There was further bad news on the jobs front yesterday with the loss of almost 300 jobs around the State. Shipping line Stena announced it was shedding 150 jobs and cutting back on services while Foxteq Engineering is closing its Mullingar plant with the loss of 119 jobs after failing to compete with Far East imports.
One of the main longer-term dangers of rising unemployment is the damage this could do to confidence and spending. The OECD warned that unemployment in the US would rise to 6.2 per cent next year with jobless levels increasing to 8.9 million from 6.8 million.
The main risk to Irish growth, according to the OECD, is that wages will continue to grow rapidly.
And in common with the Economic and Research Institute, it points out that if the euro appreciates against the dollar and sterling, competitiveness may deteriorate significantly. "This would reduce the impact of the global pick-up going into 2003. With the economy slowing, house prices could weaken, leading to reduced consumption and less buoyant household sentiment."
The OECD said policy needed to focus on the provision of infrastructure, but warned that rising Government spending should be monitored to ensure that objectives were achieved efficiently. Its projection assumes the Government will go ahead with tax commitments in 2002 but no further.
The OECD is pinning its hopes for global recovery on the large cuts in interest rates and tax cuts in the US. It has called for a stop to further US interest rate cuts while the 10 delivered so far feed through the system. In contrast, the European Central Bank has scope for additional cuts, it says.
Overall, it predicts that growth in the OECD's 30 member-states next year - at 1 per cent - will be less than half its previous forecast as terrorist attacks in the US prompted companies and consumers to reduce spending.