The economy is losing momentum, according to the Central Bank, which yesterday significantly cut its forecast for growth next year.
After expanding by 6.5 per cent in 2006, the Central Bank forecast yesterday that growth would slow to 4.75 per cent this year before decelerating further to 3.25 per cent in 2008. This indicates a halving of the growth rate in real Gross National Product (GNP) in the space of two years.
The Central Bank has revised downwards its expectations for future economic growth in recent months. The bank yesterday clipped three-quarters of a percentage point off its growth forecast for 2008, reducing it from the 4 per cent it expected as recently as last july to 3.25 per cent.
It has also trimmed back its projection for economic growth this year, from 5 per cent to 4.75 per cent.
Weakening economic growth will lower job creation and see rising numbers out of work. The economy generated 87,000 additional jobs in 2006. The Central Bank now expects that total employment will expand by 60,000 in 2007 and by 32,000 in 2008.
Using internationally-accepted definitions, the numbers out of work averaged 93,000 in 2006. The Central Bank sees unemployment rising to 102,000 in 2007, exceeding 100,000 for the first time since 1998. The average numbers out of work are projected to rise further, to 116,000, in 2008.
The unemployment rate - the numbers out of work as a percentage of the labour force - is forecast to rise from 4.5 per cent in 2006 to 5.3 per cent in 2008.
There was further evidence of deterioration in the jobs market yesterday, as the seasonally adjusted number of people claiming unemployment benefits increased by 1.4 per cent in September - a month in which there is normally a fall in claimants.
When unadjusted for seasonal factors, the number of claimants fell by 13,554 last month.
But after the Central Statistics Office (CSO) took into account normal trends such as parents returning to work when schools re-open, the Live Register of people claiming jobseekers' benefit or allowance increased by 2,200. This is the first time that the seasonally adjusted register has increased in September since 2001.
Opposition parties criticised the Government for its record on jobs creation and retention, but economists said that the increase was not worrying in the context of a labour market that remains healthy overall.
Slower growth in domestic spending is the principal cause of the economy's loss of momentum. Domestic spending has been the economy's engine in recent years and it is running out of steam. Domestic spending includes consumer purchases, gross fixed investment - including construction - and the day-to-day spending of government.
Consumer spending is the biggest component of domestic spending, accounting for more than half of total domestic demand.
Consumers have been on a spending spree this year, with volumes of consumer purchases expected by the Central Bank to rise by 7 per cent.
However, the pace of consumer spending growth is forecast to almost halve in 2008, with the bank pencilling in a growth rate of just 3.75 per cent.
Building accounts for three-quarters of investment demand, whose contribution to economic growth has been dragged down by a stalling construction sector.
The Central Bank predicts that building and construction will experience a volume decline of 2.75 per cent this year, followed by a further fall of 3 per cent in 2008.