THE FIRST quarter is likely to have marked a low point for the economy, according to a report from Bank of Ireland.

In its latest quarterly outlook, the bank said it expects the economy to contract by 7 per cent this year, with the bank’s economist Dan McLaughlin predicting this will drive unemployment to 13 per cent.

The report found a sharply divergent performance in different parts of the economy with domestic demand falling 6.6 per cent compared to a net growth of 16 per cent for exports, led by pharmaceuticals and medical devices firms. Consumer price inflation will also return to positive territory in 2010.

Real consumer spending will drop by 7.5 per cent in 2009, according to the bank’s forecasts, but the decline in retail sales will moderate over the year.

“Households are also seeking to save more, with past evidence of Irish consumer behaviour showing unemployment as a strong influence on aggregate savings,” Mr McLaughlin said.

A further economic contraction for Ireland is forecast for 2010, with signs that the UK and US may return to growth in this quarter.

Meanwhile, AIB Global Treasury’s latest housing market bulletin said the depressed levels of housebuilding would help clear the existing housing stock.

House guarantee registrations, which largely reflect multi-unit developments, are now running at a seasonally adjusted rate of just 3,500 units per annum. Commencements, which only exclude local authority builds, are running at a seasonally adjusted rate of 8,500 units per annum.

AIB forecasts that about 25,000 units will be completed this year, with output falling to 10,000 by 2011.

“These levels of potential new housing supply are well below any estimate of medium-term housing demand, which we put at around 40,000 units per annum. However, a severe curtailment of residential construction activity is necessary to reduce the level of stock overhang of unsold houses and restore the supply/demand balance,” according to AIB.