ACCOUNTING for 23% of our GDP and up to 20% of total employment, Ireland's construction industry undoubtedly dominates the entire private economy.

Through direct links to the housing and commercial real estate markets, and infrastructure investment, this sector has long become the symbol of the Celtic Tiger . . . replete with entrepreneurial brilliance and very public controversies.

More importantly, the construction sector underpins a large share of our government plans for the future . . . from building public infrastructure to generating revenue for our ambitious capital expenditure projects and current spending programmes.

Yet, with extreme uncertainty looming over both the Irish housing market and the government's expectations for the future revenue growth, Ireland's construction sector is heading for a rapid slowdown.

This week, in a research note prepared for its London conference on Building and Construction markets in the UK and Ireland, Citigroup has provided some interesting forecast figures for the Irish construction sector.

The note claimed that although Ireland's construction markets have performed in line with the strong growth in the economy in the past, the residential construction sector is expected "to cool from unsustainable doubledigit growth rates over the next couple of years, though the non-residential sector is seen picking up most of this slack, growing at 10.8% this year."

What does this 'picking up most of the slack' really mean for the future of the Irish economy? According to the latest data, from Euroconstruct, new residential construction in Ireland has gone up in value from 10.69bn per annum in 2000 to 18.46bn in 2006.

DKM Economic Consultants . . . suppliers of original forecasts to Euroconstruct . . . expect that these numbers will fall to 17.45bn in 2007 and to 14.36bn in 2009.

By 2009, the Irish new residential construction sector will see the value of its output decline by 22.2% relative to 2006 levels. The total residential construction (inclusive of refurbishments of existent properties) is forecasted to fall in value by 15.8% in real terms between now and 2009.

Another segment of this industry is the NonResidential Construction (NRC) sector. Here, the figures from DKM, cited by Euroconstruct, predict a cumulative growth of 25.1% through 2009 relative to 2007 levels in real terms . . . a booming prospect.

The third sector, known as the Civil Engineering sector, is expected to grow by 19.5% between 2007 and 2009. This sector in Ireland is dominated by state spending on infrastructure investment and upgrades.

Overall, taking into account inflation differentials between 2005 and 2006 and using inflation forecasts for 20072009, DKM is forecasting the value of the construction industry activity in 2009 to remain roughly stagnant relative to the 2005 level, consistent with a cumulative decline of 1.82% in 2007-2009.

In 2005, the Irish Construction sector directly employed around 242,000 workers. By the second half of 2006 this number rose to 272,600 and some of the more current estimates suggest that we now have more than 280,000 construction workers in Ireland.

Assuming that the labour productivity growth in the sector over the last seven years (approximately 6% cumulative) will continue into 2009, the expected slowdown in construction sector can lead to a loss of 45,000-52,000 jobs in the construction sector by 2009.

At 798.46 per week in average weekly earnings in the sector in December 2006, this would translate into a loss of 1.87-2.19bn in wages.

And these estimates might be erring on a cautious side, since the original Euroconstruct figures reflect rather rosy expectations about the Irish housing markets prevalent in the early autumn of 2006.

There is, of course, a serious problem with the already modest projections for growth for the NonResidential Construction sector. The entire activity in Civil Engineering is dependent on the government spending relating to infrastructure and capital investment projects.

This, in turn, depends crucially on government revenues, which are significantly exposed to any adverse shocks to . . . you've guessed it . . . the housing markets.

In Ireland, in 2006, Residential Construction accounted for 66.63% of the entire construction industry. This means that whichever way one spins the numbers, to maintain the existent levels of employment and exchequer returns, the construction industry will have to do something dramatically different from what it has been doing so far.

Dr Constantin Gurdgiev is an economist and editor of Business & Finance magazine constantin@tribune. ie