Several leading economists and more crucially the Central Bank are set to slash their economic growth forecasts for Ireland to between 0% and 1.5% as the property market and construction sectors continue to decline and bank credit remains constrained.

It is understood the Central Bank will cut its 2008 GDP growth forecast from 2.4%, outlined in its last quarterly bulletin, to about 1.25%. This is regarded as the most optimistic outcome and the bank may reduce the projection even further.

Along with the ESRI and several economists in banks and univers­ities, the bank is concerned a depressed property market and a lack of banking finance will slow the economy for the remainder of the year, with little prospect of a 2009 rebound. The bank is current­ly forecasting a GDP growth of 3.6% for 2009 and will revisit this figure in light of the sharp slowdown in the US and faltering growth in many European economies.

The prospect of further interest rises from the European Central Bank is also likely to depress growth, although the bank's president Jean Claude-Trichet is determined to tackle rising inflation in Eurozone economies.

It is understood the Central Bank is not excessively worried about the financial positions of the main Irish banks, believing rental income from major property projects is helping bank clients service their interest bills relatively adequately.

It is understood the Central Bank has stress tested the financial system and its own controls in recent weeks.

While the bank and the financial regulator remain vigilant there is some concern about property developers who are highly leveraged via funding from UK and other overseas banks. These developers might run into liquidity problems, but there is no sign of this so far.

The chief executives of the main Irish banks have been in regular contact with the Central Bank and the financial regulator over recent months and all sides are talking to each other on a weekly basis, sources indicate.

The Department of Finance and the Central Bank would like the government to hold a strong line on current spending increases, although most policymakers support strong capital spending.

However large parts of the National Development Plan are coming under threat as the government's fiscal position deteriorates. The sharp fall-off in taxation revenues is the most worrying aspect, say policymakers, because government revenues are notoriously hard to predict, especially in a slowdown.