This could scarcely be worse news for incumbent Taoiseach Brian Cowen, coming so soon after the electorate snubbed the Government and the other main political parties by rejecting the Lisbon Treaty.

Having just taken up the top post, he is having to deal with a situation which could swiftly snowball into a crisis of confidence.

The ESRI report paints a very gloomy picture over the next few years. GNP is expected to decline by 0.4% this year; emigration will return as unemployment racks up; public finances will plunge into the red and the Irish Government will face possible European Union sanctions for breaching limits on borrowing by almost £2bn next year.

For an economy that was hailed for most of the last decade as the fastest growing in Europe, this forecast, if realised, will represent an immense reversal of fortunes. The collapse in house building — this year's total will be less than half of last year's — is the main reason for the gloomy predictions.

Construction is one of the main drivers of the Irish economy and the fall in activity is so great that it wipes out the growth in the rest of the economy.

With the global credit crunch and the difficulty in borrowing for either developers or home buyers, there seems little prospect of a swift recovery in this sector.

Political opponents have been quick to accuse Fianna Fail of squandering the huge incomes from the Celtic Tiger boom and that is a charge which Mr Cowen will find difficult to deny.

His party has been in power for 11 years but, like the Labour Government in the UK, finds itself with few reserves to help steady the economy in these straitened times.

While some people on this side of the border might be tempted to have a self-satisfied smirk at the economic woes of our nearest neighbour that would be a premature reaction.

At a time when Northern Ireland is seeking all the financial help and investment that it can muster to build on the political progress, hard times in the Republic will impact on the local economy.

If the Republic does fall into its definition of a recession, will that lead to a revision of plans by the Irish government to invest in cross-border infrastructure projects, such as the £340m pledged for a new road from the border to Londonderry?

What also about the hope that financial sector jobs from Dublin could be relocated to offices in Belfast? Will private and commercial investors from the Republic now be forced to retrench, hitting the construction industry in the north?

Relationships between the two parts of this island have never been closer, but it may soon be every man for himself in the pursuit of new foreign investment.