Growth rates in the economy will be halved this year, according to the latest forecast from Davy Stockbrokers' chief economist Mr Jim O'Leary.
The US downswing along with the shakeout in the tech sector and the foot-and-mouth outbreak would combine to ensure growth rates were halved, said Mr O'Leary in his latest monthly economic briefing.
He warned a slowdown this steep could cause problems if people had based projections for this year on the high growth rates of recent years. He now expects the economy to grow by 6 per cent in terms of gross domestic product and by 4.9 per cent in terms of GNP.
This will also mean a small rise in the unemployment rate from an average of 4.3 per cent in 2000 to an average of 4.8 per cent in 2002 and will affect Exchequer finances.
Mr O'Leary warned that Mr McCreevy was now likely to miss his target for an Exchequer surplus by around £700 million (€889 million).
That would mean a surplus of £1.8 billion and a general government surplus of 3.5 per cent of GDP, far below the 4.8 per cent called for by the European Commission.
He cautions that it is possible growth will be even weaker. One risk is that the US economy enters a prolonged recession, severely restricting growth in Europe. "From an Irish perspective, the negative consequences of such an action could include a drying up of foreign direct investment flows and a steep appreciation of the euro against sterling, which would have damaging consequences for the competitiveness of Irish producers."
He added that a slowdown would be welcomed as it gives marginal relief to the problems of rapid growth including congestion, labour shortages and spiralling house prices.
One of the main ways the slowdown will be felt will be through a halving of exports, says Mr O'Leary. The outlook for the construction sector has also dimmed. Mr O'Leary now estimates overall construction output growth of only 2 per cent this year ahead of a 5 per cent increase next year.
Consumers are likely to be more cautious, he suggests, and will probably begin saving more. Balancing this will be significant increases in the public sector pay bill allowed for the in the recent revised book of estimates.
Mr O'Leary remained optimistic on the euro, predicting it would appreciate to parity and "perhaps beyond" over the balance of this year.
