The Central Bank expects economic activity to return to positive growth this year, after three successive years of contraction.
In its latest quarterly bulletin, the bank forecast that gross domestic product (GDP) will grow by 0.9 per cent this year, rising to 2.2 per cent in 2012.
Gross national product (GNP), which excludes multinational profits, is expected to remain broadly unchanged in 2011, before returning to growth of 1.6 per cent next year.
While growth is set to re-emerge, the bank warned that employment and disposable income will remain under "downward pressure" in the short term. "For many people there is likely to be little sense of improvement in their economic situation," it said.
Earlier this week, the International Monetary Fund (IMF) said the economy will grow this year by less than anticipated just four months ago.
In new forecasts for the world economy, published yesterday, the Washington DC-based organisation said it expects Irish GDP to expand by 0.5 per cent this year. The last IMF forecasts on Ireland, published immediately after the bailout was agreed in December, had anticipated growth of 0.9 per cent in 2011. It said it believes the Irish economy will grow by almost 2 per cent next year.
The Central Bank noted that preliminary data for 2010 showed a 2.1 per cent decline in GNP terms, and a 1 per cent reduction in GDP, making it the third successive year in which the economy has contracted. However, the pace of decline eased significantly compared to 2009, when GDP and GNP fell by 7.6 per cent and 10.7 per cent respectively.
Exports performed strongly last year, with volumes rising by an annual average of 9.5 per cent. This represented the largest such increase in a decade. The reliance on exports as the main driver of growth is expected to continue this year and next.
"As a small and very open economy, the continued strength and sustainability of the recovery in the global economy will have an important bearing on the country’s prospects," the bank said.
Domestic demand was weak last year and is expected to remain subdued. The unemployment rate has been revised upwards to 14.3 per cent for 2011, followed by 14.1 per cent in 2012.
