"Without the subprime crisis, the housing adjustment would have been a lot less," he said during a presentation in Dublin today. "It's clear that it's not over yet."

Irish house prices are tumbling and construction is contracting at a record pace after a decade-long property boom. While a monthly index by Irish Life & Permanent Plc shows prices have fallen 12 percent from their early 2007 peak, the decline may actually be closer to 25 percent, Power said.

Prices for new homes have probably dropped 20 percent to 25 percent, said economists from real-estate agents Hooke & MacDonald and Sherry Fitzgerald who attended the Friends First event.

The drop in house prices and rising unemployment are undermining consumer spending power, said Power, who forecast that gross domestic product may shrink 1 percent this year as investment drops by 15 percent and consumer spending growth eases to 1.5 percent from 6.3 percent. The economy may grow 1 percent in 2009, he said.

"To emerge from the current difficulties it is clear that the housing adjustment will have to run its course, oil prices will have to fall and the external economic cycle will have to improve," Power said. "Most of these developments should happen, but not before 2010 at the earliest."

Source: Bloomberg