Dublin - A Dublin-based think tank issued its gloomiest outlook yet for the Irish economy Friday, forecasting a drop in economic activity of 4.6 per cent in 2009 and a jump in unemployment to almost 10 per cent.

"The Irish economy is in the midst of a contraction that is large by both historic and international comparisons," the Economic and Social Research Institute (ESRI) said in a statement.

Ireland's gross national product, which does not include net investment from abroad, is expected to fall by 2.6 per cent this year before slumping by 4.6 per cent next year.

Investment in Ireland would drop by 19.3 per cent in 2009, the ESRI forecast, while consumption would drop 3.6 per cent.

Some 117,000 more people would be unemployed next year, and Ireland would once again see more people leave the country than enter it to work, with net outward migration of 50,000 people in 2009, according to the ESRI.

This would be "one of the largest annual migration totals ever recorded," Irish national broadcaster RTE reported.

During the economic miracle that started in the 1990s, Ireland welcomed migrants from overseas for the first time, many from Eastern Europe, pushing its non-native population to some 10 per cent.

Shrinking tax receipts have also caused problems for government finances.

The government deficit was expected to be 6.9 per cent of gross domestic product (GDP) by the end of this year, well above the EU's limit of 3 per cent.

In 2009, the ESRI expects public borrowing to reach 17 billion euros (24 billion dollars), resulting in a deficit of 10.2 per cent of GDP.

The ESRI said the shortfall would mean that taxes would have to increase and that a recently struck pay deal with public sector workers would have to be renegotiated.

"The possibility of pay cuts in the public sector should at least be considered in this context as pay cuts may well be considered preferable to cuts in services," the ESRI said. (dpa)