Faltering economies in the US and Britain and the strengthening of the euro on world currency markets will hit Irish exports in 2008 and drag down the Irish economy, Goodbody Stockbrokers warned yesterday.

Downgrading its forecasts for Irish economic growth to 2.3 per cent this year and 2.5 per cent in 2009, Goodbody said the slowdown would be more prolonged than previously expected, as high levels of unsold houses would result in fewer houses being built in 2009.

Weakness in the economies of developed countries and unfavourable currency exchange rates for exporters will "test the resilience and flexibility" of the Irish economy, according to a new report.

Goodbody's previous forecasts were for 2.5 per cent growth this year, followed by a swift "v-shaped" recovery in 2009, when it estimated that the economy would grow by 3 per cent. Other forecasts predict an even higher "bounce" next year.

Goodbody's more dismal assessment for the Irish economy came on a day when US president George Bush proposed a growth package of as much as $150 billion (€102.6 billion) to stop the US from sliding into recession. Federal Reserve chairman Ben Bernanke said the stimulus plan would be "significant" and not "window dressing".

Tax rebates, incentives for businesses and extensions of unemployment insurance are among the measures that will be discussed with the Democratic-led US Congress.

The proposed package follows a series of bleak reports showing a softening of retail sales in December and a jump in the US unemployment rate, which led some analysts to say that the economy might have already slipped into recession.

There was some good news for the US economy yesterday, as a report on consumer confidence showed a surprise increase in sentiment in January, the first gain since July, signalling that consumers may be weathering the effects of higher fuel costs and a deteriorating housing market.

But news of Mr Bush's proposed financial rescue package failed to allay concerns of a possible recession in the world's largest economy, with the price of oil steadying near $90 a barrel.

US stocks fell after details of the proposed stimulus were released, and oil reversed an earlier rally that had sent prices above $91 a barrel in the morning. The price of oil tends to fall as recession fears mount because it is anticipated that there will be weaker demand.

At home, the Iseq index of Irish shares climbed 0.7 per cent. Major stocks AIB, CRH, Anglo Irish Bank and Bank of Ireland all advanced, with gains of between 2.5 per cent and 4 per cent.

It was another volatile trading session, however, with intraday swings of 5-10 per cent not uncommon, according to Dublin-based equity dealers. Drinks group C&C was the best performer, climbing 9.9 per cent.

The Irish market, which closed ahead of the Bush speech, outperformed all major European stock markets.

Goodbody said there was a possibility that earnings for Irish equities in 2009 might be lower as a result of its more muted forecasts for growth in both gross domestic product and gross national product.

In forecasting a longer "u-shaped" recovery for the Irish economy, Goodbody chief economist Dermot O'Leary drew parallels between the US housing bubble and the Irish market.

"The housing slowdown started in the US and people said it would recover in 2007. They're now saying it could be 2009, so it just keeps getting pushed back and pushed back," he said.

Goodbody forecasts that 50,000 housing units will be completed this year, but that this will drop to 40,000 in 2009.

Consumer spending:bucking the trend

Consumers in the US, Britain and across Europe are nervous. Rising fuel and food prices mean they have less surplus cash to set tills ringing. The surprise fall in December retail sales in both Britain and the US has sparked fears that a more severe, consumer- led downturn could be on the cards.

New figures show that US consumer confidence unexpectedly rose this month, suggesting that the Christmas slip might simply be a blip. Things are the other way round in the Republic, where sales are holding up but consumer confidence is the lowest in more than four years.

Consumption last year was "robust" thanks in part to the "SSIA effect", says Goodbody economist Dermot O'Leary. Spending grew by 6 per cent in the third quarter. This will slow to 5 per cent growth in the first quarter of 2008 and average at 3 per cent for the year, as a lag effect from slower employment growth hits spending.

The Irish consumer is far from immune from economic slowdown - the floundering of the property market is a "pretty large" reaction, Mr O'Leary notes.

Fresh retail sales data (for November) due to be published next week will show just how pronounced the "feel-bad factor" is.

It still remains to be seen if consumers here are more resilient than their British counterparts or simply on course for a nastier bout of buyers' regret. - Laura Slattery