The Irish economy will grow by less than anticipated just four months ago, according to the International Monetary Fund (IMF).
In new forecasts for the world economy, published today in its World Economic Outlook report, the IMF expects Irish gross domestic product (GDP) to expend by 0.5 per cent this year.
The last IMF forecasts on Ireland, published in December immediately after the EU-IMF bailout was announced, had anticipated growth of almost twice that rate - 0.9 per cent - in 2011.
The fund has not changed its forecast for 2012. It still believes the Irish economy will grow by almost 2 per cent next year.
The weaker economy will negatviely affect the jobs market, according to IMF forecasts. Today's report contained predictions for the rate of unemployment this year and next - 14.5 per cent and 13.3 per cent respectively. In December, the IMF had expected jobless rates of 13.5 per cent in 2011 and 12.8 per cent in 2012.
The downward revision to Ireland's growth and unemployment prospects comes despite a slight upward revision to expectations of euro-wide economic growth in 2011 and 2012 and a generally solid global recovery.
By contrast, the fund also believes that the risks to world economy have increased since its last assessment in January.
IMF officials added that house prices in Spain had some way to go on the downside, but banks could handle the price depreciation without serious trouble. It said a gradual, uneven expansion is gaining traction in Europe, but could be undermined by continuing debt troubles in peripheral countries, and a lack of clarity about bank asset quality.
The fund also said a low interest rate policy was still needed in the euro area, but the comments were written before the European Central Bank raised interest rates last week.
"In the near term, continued strains in more vulnerable euro area sovereigns and banks could pose a significant threat to financial stability and growth," the IMF said.
The fund said a close linkage between debt issuing countries and the financial institutions that hold their debt could cause financial spill overs from vulnerabilities in both directions. It called on euro zone countries to take further bold steps to secure fiscal sustainability and resolve banking sector problems, particularly for the medium term.
Nonetheless, it said that a recovery that was slower in advanced countries and faster in emerging Europe, was taking hold. It edged its 2011 euro area gross domestic product growth forecast up to 1.7 per cent from 1.6 per cent in January. It also raised its 2012 forecast by a tenth of a point to 1.8 per cent.
The IMF raised Germany's 2011 GDP forecast to 2.5 per cent from 2.2 per cent in January, and its 2012 forecast rose a tenth of a point to 2.1 per cent. But it cut the UK 2011 forecast to 1.7 per cent from 2 per cent while keeping 2012 flat at 2.3 per cent. France's growth outlook was unchanged at 1.6 per cent for 2011 and 1.8 per cent for 2012.
Globally the recovery is gaining strength, with world growth projected at about 4.5 per cent in both this year and next, but unemployment remains high, and risks of overheating are building in emerging market economies, the IMF added.
Additional reporting by Reuters
