Unemployment could hit 8.8% next year, says Power

Unemployment could rise to almost 9 per cent next year as the country endures a “painful and deep” recession, according to a prediction from Friends First.

The financial services group's quarterly economic outlook suggested the numbers signing on the Live Register for jobseekers' benefits could rise to 350,000 by the end of 2009 bringing unemployment to 8.8 per cent. Just over 260,000 people were signing on the register at the end of October. 

Chief economist with Friends First Jim Power said those working in construction, manufacturing, retail and financial services faced "significant job losses" next year. Retail is particularly vulnerable and jobs could be lost in this sector after Christmas as consumer spending slows.

Mr Power does not expect a recovery for the Irish economy until at least 2010, partly because an over-reliance on construction was hampering efforts to counter the global economic slowdown.

"This overdependence has shattered confidence in our financial institutions, has contributed significantly to an erosion in confidence in the ISEQ, has impacted negatively on tax returns and is likely to drive unemployment close to 9 per cent by the end of 2009," said Mr Power.

House completions are forecast to halve next year from 50,000 to 25,000 with restrictions on access to credit and unsold stock depressing demand. There was potential for house prices to fall 10 per cent next year having already dropped by 35 per cent from their peak in mid-2006, he added.

This suggests a sharper rate of decline than recorded in the permanent tsb/ESRI House Price Index estimate of 10.6 per cent over the 12 months to September, and is explained by Mr Power, in the fall-off in the number of actual sales.

The Budget removed €2 billion from the economy in taxes while offering little stimulus for job creation or public sector reform. Public sector spending should be audited and employment cut where feasible, according to the report.

The economic assumptions underlying the budget were described as "too optimistic" with tax receipts likely to be weaker and spending higher than forecast. "The Government deficit in 2009 is projected at €12.1billion, but could easily reach €19 billion, or more than 10 per cent of GDP. This cannot be allowed happen", he said. 

Public sector employment stands at 317,000 people with 40,320 more employed commercial semi-state sector, requiring a gross public sector pay bill of €20 billion in 2009.

This would account for almost half of the projected tax receipts of €42.8 billion next year, said Mr Power, who called for a public sector spending audit.

He also recommended a 10 per cent pay cut for public sector workers earning over €50,000 and the abandonment of the recently agreed national wage deal. And in his view theGovernment had little option but to recapitalise the banks so they could resume lending.