The economy is set to slow more sharply than previously expected this year, making it difficult for the Government to meet its budgetary targets, the Central Bank said today.
In its quarterly economic bulletin, the bank cut its forecast for 2008 gross domestic product (GDP) growth to 2.4 per cent, compared with a 3 per cent forecast in the previous bulletin and growth of 5.3 per cent recorded last year.
Gross national product (GNP) growth was seen at 1.9 per cent, down from a previous 2.5 per cent forecast as a weaker construction sector slows expansion, but growth is seen recovering next year.
The state's robust fiscal position will allow it to accommodate short-term pressures, the bank said, but it warned that prudence was needed in the light of increased uncertainty.
"Furthermore, the weaker and more uncertain outlook for growth in 2008 means that it will be difficult for the government to meet its budgetary objectives this year."
The Minister for Finance, Brian Cowen has projected a budget deficit of €4.87 billion ($7.65 billion) at year end and the National Treasury Management Agency said it was seeking to raise around €3 billion in a bond issue in coming weeks.
The central bank, which in February saw growth recovering towards 4 per cent in 2009, today projected an expansion in GDP of 3.6 per cent next year.
It also said housing output would fall to around 50,000 units this year from 78,000 in 2007.
Speaking this afternoon in response to the figures, Mr Cowen said the bank's figures come as a response to the global liquidity crisis.
However, Mr Cowen added that Ireland's growth rate for 2008 is expected to be higher than almost all of our fellow EU members.
The minister said that the "economy's fundamentals" remain healthy and that he is confident the country will emerge from the situation in a "strong position".
He said: "We can best respond to the deterioration in international economic conditions by raising our productivity and by being realistic in our pay expectations".
By following the right policies now, by holding our nerve, we will come through the current situation with our economic fundamentals intact."
Additional reporting