Gross Domestic Product will drop to around 3.7 per cent next year due to a slowdown in household spending, government expenditure and fixed investment, according to a report by AIB Global Treasury.
The report entitled The Irish Economy - Economic Outlook 2007was published today by the AIB Global Treasury Economic Research Unit.
It highlights a slow down in several factors that were responsible for boosting the economy in recent years and keeping GDP at an average of over 5 per cent since 2001 to last year.
Decreased housing output, a reduction in the numbers of maturing SSIAs and a less pronounced expansionary fiscal policy are the main factors cited.
A reduction in household spending is also anticipated in 2008 with a significant deceleration in consumer spending. The increase in domestic spending is expected to fall from an average of 5 per cent this year to 2.5 per cent next year.
There is good news for home owners, however, as AIB does not anticipate a collapse in the housing market. On the contrary, the report suggests that the recent slowing of the property market is a stabilising force as the market was hitherto likely to become over-inflated.
More moderate growth in the housing sector is expected in 2008, along with increased development of non-residential property as part of the Government's National Development Plan.
The growth of employment is also expected to level off, standing at around 3.6 per cent this year and slowing further to two per cent in 2008. The recent growth in the labour market is expected to slow - a situation which should help to curtail the rise of unemployment in 2008, despite a predicted downturn in the construction industry.
AIB says the Irish economy will continue to maintain a relatively strong position in the global economy.
"It should also be borne in mind that we are looking for a slowdown in the pace of economic growth from its very robust pace in 2006 and not a slump in activity. The economy proved able to withstand the global downturn and severe contraction in the ICT (information and communications technology) sector at the start of this decade. We expect the economy to display the same type of resilience in the face of a downturn in housing, especially given the strong global economy, notably Europe," said the authors of the report.