SEVERAL TENS of thousands of workers will lose their jobs next year as the severity of the recession intensifies and rising unemployment may result as many as 50,000 people leaving the State in the year to April next, the Economic and Social Research Institute (ESRI) has warned.

In a bleak assessment of the immediate outlook for the Irish economy, the institute says in its latest quarterly economic commentary that recession will persist into 2009 and perhaps beyond. The Government's options will be limited in the face of a sharp deterioration in the public finances, it says, adding that a rise in public borrowing to €18.2 billion from €13 billion in 2008 has potential to impede recovery prospects.

In contrast to the Government budget target of a general government deficit (GGD) of 6.5 per cent of gross domestic product next year, the ESRI predicts a GGD of 10.2 per cent, up from 6.9 per cent this year. The ESRI forecasts that the economy, measured by gross national product, will contract by 4.6 per cent in 2009 after a 2.6 per cent shrinkage in 2008.

This will result from contractions in consumption and investment and the global recession.

Further contraction in 2010 is a possibility but not an inevitability, according to ESRI commentator Alan Barrett. However, an OECD forecast that international economies will "bottom out" in late 2009 is seen as an absolute best-case scenario.

Any recovery in the domestic economy rests on a return of stability in the international financial system and a restoration of business and consumer confidence internationally.

The number of people at work will decline by 117,000 at the end of 2009, bringing the number working below 2 million, "largely due" to job losses. The unemployment rate is forecast to average 9.4 per cent in 2009, up from 6.9 per cent this year. "The unemployment rate by the end of the year may well be over 10 per cent."

Dr Barrett said a 3.5 per cent pay rise due next September "appears unaffordable" for the Government, adding that the possibility of pay cuts in the public sector should at least be considered.

He warned that bank lending was likely to be constrained next year even if the institutions were recapitalised. "While the recapitalisation of the banks with public money may be necessary for the long-run health of the economy, it may not lead to any immediate rebound in bank lending."

Asked how this assessment measured against claims by some banks that they had no need for new capital, Dr Barrett said bankers knew best the situation of their own institutions. He added: "The markets disbelieve the banks and I'm a slave to the markets."

The ESRI report says tax receipts will drop to €40 billion in 2009 from a likely outturn this year of €42 billion, which itself contrasts with an ESRI forecast of €48.9 billion last year. Government policy focus must be on ensuring Ireland is as well placed as possible to participate in a global upturn when international economic decline ends.