Following the Governor of the Bank of England's gloomy forecast for the UK economy, a new AIB report has predicted a similarly bleak outlook for Ireland.

The report has estimated growth of just 1.3% for this year, and recommended that tougher Budgets be implemented over the next two years to maintain a healthy domestic economy.

AIB Global Treasury said the 4% reduction in growth in 2008 can be attributed to the struggling housing and construction sectors.

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It estimates this will have a 1.8 points adverse impact in 2009, when it expects slightly better growth of 2.5%.

According to the bank's report the housing slump, teamed with a fall in consumer spending, will create a total 1.7% drop in domestic spending in 2008, generally.

However, the AIB predicts that strong service exports and slower import growth will promote Ireland's trading position, even in light of the continued problems faced by goods exporters.

The bank does not expect a fall in inflation for the rest of 2008, but it predicts the rate to ease next year, supported by a stronger domestic currency and weaker demand at home.

(PR/JM)