Ireland's largest bank has lowered its forecast for growth next year to 3.3 per cent, citing a greater-than-expected downturn in the construction sector.

In its monthly economic bulletin, AIB's global treasury division said that its 3.7 per cent growth forecast for 2008 now appears too optimistic.

AIB said that while it had already predicted a slowdown from this year to next as a result of a reduction in consumer spending and a fall-off in housing completions, indicators now point to a greater downturn in construction activity than anticipated. This in turn was expected to have a further impact on confidence and personal spending.

This news, and in particular the negative comments on the construction sector, come at a bad time for Irish investors as share prices have plummeted in recent weeks amid concerns that problems in the US housing market are starting to filter through to European financial institutions.

In the bulletin, AIB reiterated comments made in its latest report on the housing market, saying it expects the number of completions to fall to about 62,500 next year, from a revised 80,000 this year. This compares with an original forecast of 75,000 for 2008.

Yesterday the bank also said that this slowdown is likely to have a knock-on effect on other areas of the economy, including personal expenditure and job creation, as well as a cut in Government spending as a result of a reduction in property-related taxes. On job creation the bank is forecasting a deceleration to 1.5 per cent in 2008, from 3.3 per cent in 2007 and 4.4 per cent in 2006. with a considerable number of jobs being lost in the construction sector.

However, the bank said it sees some room for upward adjustment in export growth.