Irish Economy at 'Turning Point'

Cowen, unveiling his pre-budget outlook, said the government expected to suffer a 1 billion euros ($1.4 billion) deficit this year, nearly doubling his previous forecast.

He plans to unveil his 2008 budget Dec. 5.

Cowen said he expected Ireland's economy to grow 4.75 percent this year, compared with his previous forecast of 5.25 percent, and to slow down to 3.25 percent in 2008.

The current unemployment rate of 4.5 percent would grow next year to 5.5 percent, which would be a decade high, he said.

"This year represents a turning point for the Irish economy," Cowen said, citing a sudden decline in construction of residential housing as a key indicator that the days of Celtic Tiger exuberance were over.

He said about 70,000 homes would be built this year in this country of 4.2 million, the first annual decline since 1993. He said just 60,000 homes were likely to be built next year.

As a result, Cowen said, Ireland's tax take was coming in much lower than expected, because the government takes a hefty tax cut from property sales. He said tax revenues would be 2.2 billion euros ($3.15 billion) lower in 2008 than originally forecast.

The finance minister said he would limit government spending to a 4.8 percent increase to 51 billion euros ($73 billion) in 2008 -- barely keeping pace with Ireland's inflation rate. That would be far removed from the double-digit increases of his previous budgets going back to 2002.

Cowen stressed that the sky was not falling for Ireland, which has wooed hundreds of foreign high-tech companies over the past decade with low taxes, policies that deter strikes, and an English-speaking work force in the euro currency zone.

He said Ireland's economic performance "is nevertheless impressive by international standards and one that many of our European partners would love to replicate."

While the government planned an employment freeze in some sections of the civil service, he said, an additional 9,200 teachers, hospital staff and police officers would be recruited.

Such expansion in essential public services was necessary, he said, to cope with the Europe-leading growth in Ireland's population.