The Irish and Spanish economies, which are among the fastest growing in the euro region, will slow "significantly" next year as the construction boom fades and house prices fall, according to ratings agency Standard and Poor's (S&P).

Spain's economy, the fourth biggest of the 13 sharing the euro, will expand about 2.5pc in 2008 after 3.75pc growth this year, assuming construction eases "gradually", while Irish economic growth will slow to 3.75pc from 5pc, S&P has forecast.

Property prices in Ireland and Spain have surged in the past decade as borrowing costs plummeted and construction helped fan economic growth.

Eight European Central Bank interest-rate increases since late 2005 have curbed demand for houses.

"Both Ireland and Spain are to experience a significant slowdown,'' London-based analyst Trevor Cullinan said.

"The Spanish and Irish economies are heavily exposed to the direct effects of the housing market slowdown.''

Construction accounted for around 11pc of Spain's economy last year, up from under 8pc in 2000, S&P said. Its share of the Irish economy rose to 9pc from 6pc.

Building accounted for about 5pc of the UK economy, leaving it less vulnerable than Spain and Ireland to a "benign" slowdown in construction.

Still, should building slow more than anticipated, the Spanish economy might shrink in 2008 and 2009, S&P forecast.

The UK economy, the second biggest in the European Union, may stagnate next year and Irish economic growth may slow to 1pc.