The Economic and Social Research Institute believes the economy will contract by 0.25% next year, with national income down 1.5%, but Ireland should exit the recession in the middle of the summer.
This year the ESRI believes the economy shrank by 7.25%, with a fall in national income of 10%.
In its final quarterly economic commentary of the year, the economic think-tank says it is hard to overstate what a difficult year 2009 has been for the economy. The year saw a drop of 10% in GNP and 170,000 fewer people at work.
But it believes Ireland will exit the recession during the summer of 2010, with low levels of growth for the remainder of the year.
That growth will not be enough to stave off further unemployment, with another 76,000 jobs predicted to go. But that is less than half the rate of job loss seen this year.
Assessing the recent Budget, the ESRI believes it will be positive for the economy, and that the burden of the combined changes of the past three budgets has fallen most heavily on high earners.
It says that contrary to popular perceptions this was not the most contractionary budget of modern times, as the budgets of 1976, 1988 and 1989 all took more money out of the economy.
The economic think-tank says that Ireland’s economic position will be helped by positive international developments, with both the euro zone, the US and Japan having emerged from recession in 2009.
However, it pointed out that the UK remains weak and has not yet resumed growth. This means that weakness in sterling will continue to make life difficult for indigenous Irish exporters, although lower priced UK imports will benefit consumers.
The ESRI says that the downside of resumed growth in the major world economies is the interest rate risk, with the possibility that rates may start to rise in the euro zone while Irish growth remains fragile.
The ESRI says it expects euro zone interest rates to start to rise later in the year, with year end rates predicted to be 1.75%, up from the current rate of 1%. It also says that the timing of the withdrawal of economic support measures - most notably ultra low interest rates - will have a critical impact on the evolution of the world economy.
The ESRI says it believes prices fell in Ireland by 4.25% during 2009, but expects they will fall by 0.5% in 2010.