IRELAND MAY try to restructure its debt to lower interest payments or extend the maturity on its borrowings as the economy contracts again this year, according to Ernst & Young.

The Government probably will repay its debt and investors are not likely to lose any of their principle, a move that would imply a default, said Neil Gibson, economist with the financial services and advisory firm.

“It is much more likely that the debts will be repaid in full, but at probably a more modest interest rate or over a longer timeframe,” Mr Gibson said yesterday.

He added that he expects the economy to contract 2.3 per cent this year as “the headwinds are too significant”.

The economy is struggling to expand as consumer demand contracts and Government cutbacks and higher prices dampen growth.

The economy is likely to return to annual growth next year as consumers repair their personal finances and exports increase, he said.

“Ireland is not Greece or Portugal,” Mr Gibson said. “Ireland has a genuine prospect of being able to pay off its debts because it has such a strong international business base.”

Ernst & Young expects private consumption in Ireland to decline 4.1 per cent this year and 3.3 per cent in 2012 as the Government pushes through austerity measures to bring the budget deficit to 3 per cent of gross domestic product by 2015. GDP will probably expand 1.1 per cent in 2012 and 2.2 per cent the following year, according to Ernst & Young’s Economic Eye forecast.