The Irish economic slowdown may be short with a rebound predicted in 2009 by the Organisation for Economic Co-Operation and Development (OECD), the Paris-based economics think tank. Paul Tansey, Economics Editor, reports.

The OECD forecast yesterday that Irish economic growth will pick up from 3 per cent next year to 4.5 per cent in 2009 as housing construction stabilises.

The OECD's December Economic Outlook anticipates that the slump in housebuilding will cause the growth in real Gross National Product (GNP) to decelerate to 3 per cent in 2008 "but to recover to grow at 4.5 per cent in 2009 as housing construction levels out at a sustainable level".

These positive projections for the Irish economy will come as welcome news to the Government in the wake of Wednesday's Budget.

The OECD's 4.5 per cent growth forecast for 2009 is more optimistic than the 3.3 per cent projected for the same year by the Department of Finance.

Next year, the OECD anticipates that Irish consumer spending will remain robust, pencilling in a projected real growth of 4.7 per cent.

Real day-to-day government spending is expected to exhibit particularly rapid growth next year, with a projected increase of 5.2 per cent.

However, gross fixed investment - the third major component of domestic demand - is expected to fall by 1.9 per cent in 2008, dragged down by the housing slump.

The OECD warns that the growth in public spending needs to be limited and that "sharp pay increases in the public sector need to be avoided".

It also points out that regulatory reforms, particularly in public utilities, have the potential to enhance Ireland's competitiveness.

At an international level, the OECD's Economic Outlook foresees a slowing of growth throughout the western industrial world next year. The pace of economic expansion in the euro zone is forecast to slip from 2.6 per cent this year to 1.9 per cent in 2008.

In the United States, real activity growth is expected to weaken sharply in the first quarter of next year before slowly resuming an upward trend.

For 2008 as a whole, economic growth in the US is forecast at 2 per cent. British economic growth is also predicted to weaken next year, declining from 3.1 per cent in 2007 to a projected 2 per cent in 2008.