DUBLIN (Reuters) - Ireland’s central bank advised the government on Friday to focus more on cutting spending than raising taxes in next week’s emergency budget, and said it was critical Dublin get its finances in order by a 2013 deadline.

“The sharp deterioration in the fiscal position has triggered a concern in international markets about the scale of the exchequer’s financing needs in current difficult market conditions,” the monetary authority said in its latest quarterly bulletin.
“In such circumstances, maintaining the confidence of financial markets requires restoring order to the public finances as a matter of urgency.”
Ireland’s government will unveil its second emergency budget in six months on Tuesday. It aims to stop the deficit ballooning to 12.75 percent of Gross Domestic Product (GDP), easily the worst in the European Union, and far above an EU limit of 3 percent.
The central bank slashed its forecast for Ireland’s economic contraction this year to 6.9 percent from 4 percent previously as a global recession and protracted housing market crash hits output and jobs.
Overall, over the years 2008 to 2010, the former “Celtic Tiger” economy will suffer an unprecedented cumulative decline in GDP of over 12 percent, the central bank said.
The monetary authority said there was a possibility of a return to growth in 2011 but economic conditions will worsen before then.
It forecast that unemployment would hit 11.8 percent in 2009 and further increase to an average of 14.4 percent in 2010.
“Against this difficult background, it is vital now that we move quickly and credibly to confront the very significant challenges that we face and chart a path that will, in time, ensure sustainable recovery in growth,” the central bank said.
Domestic prices, as measured by the consumer price index, were likely to fall by 4 percent after showing an average increase of 4.1 percent in 2008, while the harmonized index -- used for intra-EU comparison -- would fall 1.3 percent.
The decline in the housing market is forecast to accelerate with only 18,000 units expected to be completed this year, down two thirds from 2008. In 2010, only 12,000 units are forecast to be built.