Dublin - The Irish economy is to contract more than previously thought in 2008, according to the latest quarterly report released on Tuesday by the Economic and Social Research Institute (ESRI), a Dublin-based think tank.

The ESRI revised downward its estimate that Ireland's gross national product (GNP) would contract by 0.4 per cent in 2008, saying that it now predicted a 1.3-per-cent fall.

A country's GNP is its economic output without the contribution made by multinational companies.

Ireland's GNP would fall by 0.7 per cent in 2009, the ESRI said.

The ESRI said in the report that the main reasons behind the downward revision were the "unprecedented turmoil" in world markets, as well as "disastrous" tax returns and a rise in unemployment during the third quarter.

Ireland, which is officially in recession after two consecutive quarters of a decline in gross domestic product (GDP), mainly as a result of a house-price slump, would also experience a fall in the volume of consumption, the report said.

A government budget deficit of 5.5 per cent in 2008 and 2009 was predicted, a level that ESRI said the government should aim to stabilize.

In explaining the effects of the current global economic malaise on Ireland, economist Patrick Quill said in the ESRI's report that "Ireland is a small open economy, and a big proportion (of the GDP) is generated by large multinational enterprises and financial services companies."

Meanwhile, Irish Finance Minister Brian Lenihan has said he is confident that Ireland can reach an agreement with the European Commission on his government's controversial move on September 30 to guarantee all bank deposits in the country, Irish state broadcaster RTE reported on Tuesday.

Speaking on Tuesday at a summit of Irish employers, Prime Minister Brian Cowen said: "It is clear that Ireland is now at a defining moment as we face our most difficult economic environment for some time.

"Our objectives must be to restore confidence and stability in our economy, to safeguard the significant achievements of recent years; to protect living standards, and to lay the foundations for a return to sustainable growth." (dpa)