House prices will fall further in 2010, economists have predicted, with further job cuts and continuing credit problems to hit the Irish economy this year.

Property values have fallen by half since 2007, and another 10% decline is forecast before prices bottom out in 2011.

The Friends First Quarterly Economic Outlook said the recession would technically end in the middle of this year, and growth would pick up in the second half of the year. However, it said a fundamental reform of taxation and spending is required.

Chief Economist with Friends First Jim Power said: "The Irish economy is going through an extremely difficult adjustment and the situation remains precarious; it is way too early to sound the all clear.

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"A fundamental reform of taxation and spending is required. The most economically efficient tax system is one based on relatively low marginal rates but spread broadly – the notion that the problem can be solved by increasing taxes on the so-called 'better off' is naive and would go nowhere towards solving the problem," he said, calling for costs to be reduced further to ensure Ireland benefited from a global economic recovery.

"This is the major challenge for Irish policy makers – to ensure that as the external environment improves the Irish economy is in a position to exploit it," he said.

The same survey found that 60% did not have confidence in the Government's ability to revive the flagging economy, while 86% felt job creation was the largest challenge facing the Government.

However, only one-third said they would have more confidence in a Fine Gael/Labour Government.

Mr Power predicted further job losses in construction, retail, the hotel and restaurant sectors, financial services and the public sector.

Weak Sterling would also continue to pose problems for Irish exports, he said.

Mr Power also cast doubt on the National Asset Management Agency's (Nama) ability to get capital flowing this year.

"The banking sector still has to absorb massive bad debts and the Nama capital injection will not be sufficient to solve the capital difficulties," he said.

(BMcC/GK)