Davy has cut its forecast for economic growth this year and next and said profit at the country's largest companies will be less than it previously anticipated.
Davy economist Rossa White lowered his 2008 gross national product growth forecast to 1 per cent from 1.7 per cent and noted that the economy was unlikely to recover to a 3.5 to 4 per cent growth rate until 2010. As a result he has also cut forecasts for 2009 from 3.4 per cent to 2 per cent.
He said the Irish economy had been hit by three blows this year which have compounded the impact of the housing slowdown.
The credit crunch was now having an effect on the wider economy and development finance was difficult to raise, he said the European Central Bank was "not helping" by keeping interest rates on hold.
The final element has been the rapid appreciation of the euro which has highlighted the downside of not having control of monetary policy. The effects of this, particularly on exporters to the UK and on the indigenous tourism industry were significant.
Consumer spending may rise 1 per cent this year, down from a previous forecast for 2.5 per cent growth, Mr White said.
Lower employment gains and rising food and energy costs coupled with higher levels of precautionary saving were contributing to this slowing in spending he said.
Noting the importance of the housing market to the economy Mr White said house prices would continue to fall until 2009 and that new housing completions will drop to just 25,000 that year. He expects builders to complete around 45,000 houses in Ireland this year.
It expects house prices to fall 10.7 per cent this year and by a further 7.2 per cent in 2009.
On a day when the Taoiseach Brian Cowen told the Dail that Government spending on the National Development Plan is predicated on a growth rate of 4 per cent or higher, the Davy report said it expects capital spending commitments to be met.
"It is absolutely critical that [the Government] keeps its nerve", Mr White said.
Davy has also lowered its 2008 and 2009 earnings-per-share estimates for Bank of Ireland, Allied Irish Banks, Anglo Irish Bank and Irish Life & Permanent by as much as 12 per cent, according to a separate note to clients today.
In line with the forecast for lower homebuilding, the broker cut its forecasts for Grafton Group, the country's largest builders' merchant, and Kingspan Group, by as much as 20 per cent, citing factors including the slowdown in economic growth, cooling consumer spending and the decline in homebuilding.
It revised its 2009 earnings prediction at Kingspan to 60.5 cents a share from 74.6 cents, and lowered its Grafton estimate to 50 cents from 63 cents.
Additional reporting Bloomberg
