The Economic and Social Research Institute (ESRI) is calling for tax rises and spending controls.
The ESRI said tax increases and new spending restrictions were necessary to protect public finances. It warned the State was heading for a wages "free-for-all", with spiralling pay levels eroding the economic achievements of the past few years.
In a quarterly commentary, the institute also identified inflation as the biggest short-term threat to the economy, and appealed for "a reality check" on the part of everyone involved in wage talks.
It said wages were now running ahead of productivity gains - a development that would bring fresh job losses.
The organisation forecast the Government would miss its financial targets this year and said there would be further deficits in the future.
The ESRI's comments come less than 24 hours after the Irish Business and Employers' Confederation (IBEC) warned that public spending levels were a recipe for disaster.