THE IRISH economy is extremely weak and will slip into recession this year, according to a new report by NCB stockbrokers.
In its third-quarter outlook, NCB said gross domestic product (GDP) will fall 1.6 per cent this year and gross national product (GNP) will drop 1 per cent.
The Irish economy is being pushed into recession by a domestic housing market collapse, the credit crunch, commodity inflation and the strong euro, the report found.
These factors would also swell the numbers out of work, with NCB predicting unemployment to increase from 5.8 per cent this year to 6.7 per cent in 2009.
The quality of employment was also changing, with part-time posts accounting for two-thirds of new jobs in the first quarter, the highest proportion on record.
According to NCB, there are 289,000 unoccupied houses and, while not all are adjudged for sale, the report estimates there is a 12-month supply of unsold new homes on the market. This oversupply means new house completions are likely to fall to 45,000 this year and 30,000 next year.
The fall-off in demand and restrictions on accessing mortgage credit have led NCB to forecast a drop in real house prices of between 33 and 40 per cent from highs of January 2007.
Although weakening global economic conditions were likely to ease inflationary pressures - with NCB predicting oil prices will "self-correct" - the report found little expectation of an ECB rate cut until mid-2009. NCB expects two rate cuts next year to bring ECB interest rates to 3.75 per cent.
Brian Devine, NCB economist, said the ECB's policy and the credit crunch were "placing undue pressure on household budgets, inhibiting consumption growth and raising the prospect of accelerating impairment charges".
He said weakness in Ireland's main export markets meant external demand will be weaker over the next 18 months. "No more than 16 per cent of Ireland's total exports are destined to the booming Asian and Brazil, Russia, India and China markets," he said.
He predicted no GDP growth in 2009 and GNP to fall 0.4 per cent.
