Economic growth will halve this year, according to the latest set of forecasts published by the Central Bank. Paul Tansey, Colm Keenaand Laura Slatteryreport.
The volume of goods and services produced by the economy - known as Gross National Product or (GNP) - is expected to increase by 2.6 per cent this year compared to an estimated real GNP growth rate of 5.1 per cent in 2007.
The reduced forecasts came as new figures showed that the number of people claiming unemployment benefit rose in January at the fastest pace since 1980.
Live Register figures released by the Central Statistics Office revealed a 7,800 increase in the jobless total, with men accounting for the bulk of the increase.
Economists said the figures pointed to further evidence of the slowdown in housebuilding.
The housing market provided further gloomy news yesterday, with the latest data showing that prices fell by 7.3 per cent in 2007, with a further drop of 5 per cent forecast for this year.
The Permanent TSB/ESRI index showed that buyers paid €23,000 less for an average property in December than they did 12 months previously. Prices are now back where they were at the start of 2006, according to the index.
The Central Bank said the downturn in construction is expected to cost 23,000 building jobs this year. The bank's first bulletin of the year highlighted the anticipated sharp decline in construction and slower growth in consumer spending as the main factors dragging down economic growth over coming months.
The slowing growth rate is expected to cause unemployment to rise by 26,000 this year. As a result, the unemployment rate - the numbers out of work as a percentage of the labour force - is projected to increase from 4.5 per cent in 2007 to 5.6 per cent this year.
The total numbers at work this year are forecast to increase by just 16,000 or 0.8 per cent.
Employment in services and in industry is projected to rise by a combined 39,000.
Spending is expected to increase by just 1.5 per cent, despite efforts by the Government to put more money in peoples' pockets in last December's budget. This represents a significant slowdown from the 4.6 per cent expansion in real domestic spending estimated for last year.
However, the Central Bank glimpses a shaft of light on the horizon. Once the economy absorbs the current housing shock, the bank foresees a modest pick-up in the GNP growth rate to 4 per cent in 2009 and subsequent years.
The Irish stock market shrugged off the bad news yesterday, closing 2.5 per cent stronger as investors were encouraged by Microsoft's decision to launch a $44.6 billion bid for internet company Yahoo.
European shares were also helped by news of China's $14 billion investment in global mining group, Rio Tinto.