House prices will fall further in 2010, economists predicted today, with further job cuts and continuing credit problems to hit the Irish economy this year.
Property values have fallen 50 per cent since 2007, and another 10 per cent decline is forecast before prices bottom out in 2011.
The Friends First Quarterly Economic Outlook said the recession would technically end in the middle of this year, and growth would pick up in the second half of the year. However, it said a fundamental reform of taxation and spending is required.
"The Irish economy is going through an extremely difficult adjustment and the situation remains precarious; it is way too early to sound the all clear. A fundamental reform of taxation and spending is required. The most economically efficient tax system is one based on relatively low marginal rates but spread broadly – the notion that the problem can be solved by increasing taxes on the so-called 'better off' is naive and would go nowhere towards solving the problem," said chief economist with Friends First Jim Power.
He called for costs to be reduced further to ensure Ireland benefited from a global economic recovery.
"This is the major challenge for Irish policy makers – to ensure that as the external environment improves the Irish economy is in a position to exploit it," he said.
However, despite predictions of growth continuing into 2011, the Friends First consumer outlook revealed that more than a third of consumers surveyed did not think the economy would grow until 2012. Only 24 per cent said they believed the economy would return to growth by the end of 2011.
Some 46 per cent predicted their finances would deteriorate over the next 12 months.
The same survey found that 60 per cent did not have confidence in the Government's ability to revive the flagging economy, while 86 per cent felt job creation was the largest challenge facing the Government. However, only one-third said they would have more confidence in a Fine Gael/Labour government.
"Looking forward this year, it is difficult to be very confident that the economic situation will improve considerably," said Mr Power. "House prices continue to fall; having fallen by at least 50 per cent since 2007 a further 10 per cent decline is likely this year before bottoming out in 2011. Consumer confidence and spending will continue to be undermined by wage cuts, an uncertain labour market, further cuts in Government expenditure and, more than likely, increases in the personal tax burden."
Mr Power predicted further job losses in construction, retail, the hotel and restaurant sectors, financial services and the public sector.
Weak sterling would continue to pose problems for Irish exports, he said.
Mr Power also cast doubt on the National Asset Management Agency's (Nama) ability to get capital flowing this year.
"The banking sector still has to absorb massive bad debts and the Nama capital injection will not be sufficient to solve the capital difficulties," he said. "It is likely that the Government will be forced to take a much bigger stake in the institutions and will have to inject a significant amount of further capital into the banks over the coming months."
