A contraction in the economy of 1.5 per cent next year and a slight increase in unemployment to 13.75 per cent are expected in the Government's Pre-Budget Outlook which will be published tomorrow.
The Government also expects that if the intended €4 billion cuts in public sector costs is achieved, the overall budgetary deficit in 2010 will amount to 12 per cent of gross domestic product (GDP). Without the austerity measures being taken, it says that the deficit could rise to some 14.5 per cent of GDP.
The outlook also confirms that the economy will contract by 7.5 per cent this year. The figures are broadly in line with recent forecasts, including the ESRI's latest quarterly economic forecast.
However, they are more optimistic than the comparable figures presented in the supplementary budget in April. At that time, the Department of Finance was predicting an economic contraction next year of 2.9 per cent (almost twice the current forecast) and for unemployment to rise to 15.5 per cent.
The economic data was contained in a memo presented by Minister for Finance Brian Lenihan to the Cabinet at its weekly meeting yesterday. The Department of Finance last night confirmed that the figures were accurate but said that they may be subject to some minor adjustments before tomorrow's publication.
The Pre-Budget Outlook will update economic and fiscal projections for 2010 and also includes detailed pre-budget estimates of the resources that will be required next year by each department to provide its services.
Government sources said that the figures were slightly more optimistic than earlier this year but also sounded a note of caution about them being over-interpreted in terms of recovery.
They pointed out that the slightly lower unemployment rate could be attributed to many foreign national workers returning to their home countries in 2010 (the ESRI has estimated a net outflow of at least 40,000 next year).
More people have returned to education and have also joined work training programmes.
The sources said that figures in the first three months of 2009 were "horrendous" but have abated since then, a little more than was expected. They added that the only predictions that have not been stable this year have been in the area of tax revenue and receipts, with a shortfall of some €2 billion.
"None of that will have an effect of reducing what has to be done in the budget. The figures are contingent on doing what we have set out to do. The adjustment has to happen," said one senior Government source, who spoke on condition of anonymity.
The Opposition parties honed in on the unemployment rate. The predicted 13.75 per cent next year is more than one percentage point up on the current rate of 12 per cent.
Fine Gael deputy finance spokesman Kieran O'Donnell said the figures could only be interpreted as an indictment of a Government which had no proper jobs strategy to combat growing unemployment.
"The budget must have a proper jobs strategy so that we do not have a rampant growth in unemployment next year. But unfortunately there is no sign of a coherent plan being in place," he said.
Labour deputy leader Joan Burton said the figures were an "appalling reflection" of the record of economic mismanagement by the Government.
"The figures are terrible. They reflect the fact that the cost of servicing Irish debt has increased because of the collapse of the Irish banking system," said Ms Burton.
Meanwhile, it emerged that lower levels of child benefit will be paid to high-income earners under proposals being considered by the Department of Social and Family Affairs in advance of the budget.
Although no plan has been presented to Government as yet, it would be likely to involve an across-the-board cut in the basic rate of child benefit but with a "top-up" for those on social welfare and recipients of the family income supplement.