The Central Bank has joined other domestic and international organisations in calling for budget 2014 to contain the full €3.1 billion in spending cuts and additional taxes that the Government had previously committed to implementing under the terms of its EU-IMF bailout.

The Central Bank’s economists urged the Coalition “to resist the temptation” to take advantage of a reduction in the overall costs of the bank-rescue promissory notes, agreed with euro zone partners earlier this year.

On Wednesday the head of the European Stability Mechanism, which could be called on to provide funding to the Government in the future, also urged the Government to introduce a consolidation package next year of €3.1 billion.

The IMF echoed that call last week and the Economic and Social Research Institute did so a week earlier.

“Ireland’s deficit and debt levels remain very high and full implementation of the planned fiscal adjustment of €5.1 billion, as scheduled for 2014 and 2015, is a valuable key in maintaining the confidence of international lenders and will also help build a buffer against potential shocks,” the Central Bank said.

Reflecting its concerns about weaker economic outcomes this year and next, the bank made substantial cuts to its 2013-14 growth forecasts.

It now believes that GDP will grow by just 0.7 per cent 2013, a cut of half a percentage point on three months ago. On the narrower measure of economic output - GNP - it cut its 2013 forecast in half, from 0.6 per cent three months ago to 0.3 per cent now.

While the bank expects considerably stronger growth in both measures in 2014, of 2.1 per cent and 1.3 per cent respectively, it also made substantial downward revisions from its last set of forecast numbers.

The bank’s more subdued outlook is mostly attributable to weaker demand for Irish goods and services in the largest foreign markets, with the euro zone suffering most.

Although some glimmers of hope have very recently been observed in the Euro zone, the bank said any recovery was likely to be weak owing to high levels of indebtedness and joblessness. It also noted the continued divergence in economic performance within the currency bloc, with peripheral economies remaining in recession.

Mark Cassidy, head of monetary policy at the Central Bank, noted the much higher interest rates on bank lending in Ireland, Spain and Italy, when compared to core countries, partly explain the divergence in economic performance.

Regarding employment prospects, the bank’s economists were no more upbeat, cutting their forecasts for the numbers of people at work in the economy. Three months ago they expected total employment in the economy to remain stable this year compared to last year, but they now expect a further contraction of 0.4 per cent. For next year they have cut their employment growth forecast from 0.5 per cent to 0.3 per cent.

The bank went on to emphasise the need to maintain focus on improving the competitiveness of the economy and “recovering more of the ground lost during the boom [which]would help to boost Ireland’s growth potential.”

It concluded by saying that “reducing the cost base of the economy, both public and private, would be beneficial for the process of recovery”.