The Irish economy is projected to contract by 7.9 per cent in 2009 and a further 1.8 per cent in 2010, according to the latest Economic Outlook from PricewaterhouseCoopers (PwC).
The Irish economy, which has declined steeply in recent quarters, was unchanged in the second quarter of 2009, due to net exports and stronger investment expenditure offsetting lower Government expenditure and the depletion of stocks by businesses, PwC said.
The labour market continues to deteriorate albeit at a lower rate.
PwC forecast deflation for 2009 to be 1.6 per cent for Ireland, adding this cost correction will be a "key driver" to restoring Ireland’s competitiveness.
"Equally important to getting business and economic fundamentals back on track is to ensure that the financial sector is stabilised and that Ireland’s position is reasserted as a location of choice for foreign direct investment."
In the Euroland economy, PwC predicted a contraction in economic output 4.1 per cent for, with a weak recovery likely in 2010, "despite signs the current contraction eased considerably in the second quarter".
Stabilisation of the Euroland economy was attributed to "unconventional fiscal and monetary stimulus measures", such as car scrappage schemes, worker retention programmes, and quantitative easing.
PwC warned it remained unclear, however, as to whether private demand is sufficiently robust enough to support a winding down of government support programmes.
"Consumer confidence has recovered from lows earlier in the year, but consumer spending in Euroland remains relatively constrained."
The business advisers noted although surveys of business confidence indicated the services sector is optimistic of a return to growth towards the end of 2009 and into 2010, that view is not yet shared by manufacturing industries.