The employers organisation IBEC is forecasting a marked slowdown in economic growth next year. In its latest quarterly trends publication, it predicts that gross domestic product (GDP) growth will reach just 3.8 per cent in 2002, down from its last forecast of 6 per cent.

This is still slightly higher than some more negative forecasters such as the Economic & Social Research Institute (ESRI), which is predicting growth of less than 2 per cent, but is in line with the Central Bank which is predicting GNP growth of 3.5 per cent - close to IBEC's projection of 3.2 per cent.

Other more bullish forecasters such as Bank of Ireland's Dr Dan McLaughlin are expecting GNP growth of 4.5 per cent. IBEC concedes that its projections amount to "scenario painting" more than forecasting, and that the numbers are subject, more than ever, to a high degree of risk.

It also warns that the Government's finances are in considerable "disarray" and need to be sorted out if the State is to be able to benefit from any future pick-up in global growth.

According to IBEC, the events of September 11th will have some impact only on the last quarter of this year and will be felt more next year. It also warns that assumptions in relation to trade and foreign direct investment may have to be reviewed.

The organisation says the slowdown will impact on employment, as fewer jobs are created and higher numbers of jobs are lost. It warns that employment growth could be as low as 0.6 per cent next year, with the main growth in the financial and business service sector - and possibly retailing.

The IBEC/ESRI Monthly Industrial Survey has indicated a rapid deceleration in employment expectations but has not yet showed actual employment reductions. However, tourism will continue to be badly affected and unemployment is likely to rise to 5 per cent next year, from 3.7 per cent last month. According to IBEC, it is possible that labour force growth will slow, as some people facing unemployment may leave and others who might have intended to come to Ireland will put those plans on hold.

IBEC is also calling for low inflation to be recognised in wage settlements and warns that rises this year are putting serious pressure on competitiveness. It says that settlements above the PPF would put further pressure on employment. "Government, too, must recognise this reality in its dealings with public sector wages and also recognise the lower rate of inflation when deciding social welfare increases."

Inflation is expected to remain subdued as oil prices remain stable if OPEC countries continue to support the anti-terrorism response.

It is also expecting that the euro will strengthen and global inflation will be weak.

IBEC predicts that consumer spending will continue to decline, with confidence less buoyant than in previous years as smaller than usual tax cuts come through and despite further interest rate reductions.

According to IBEC, the exchequer finances are in "significant disarray". It points out that in the past, spending overruns were matched by revenue buoyancy. "The figures for the first nine months of the year indicate a serious departure from the recent past."

IBEC is calling for some redress for the removal of the ceiling on employers' PRSI and says that any tax reductions should be targeted at the low-paid. "In this way it would help business to cope with the slowdown in activity and also the erosion of competitiveness that could be exacerbated next year by a strengthening of the exchange rate." However, it also warned that there should be no cutback on spending on essential infrastructural needs.