The Central Bank has cut its key growth forecast for 2003, blaming the sluggish recovery in the world economy. GNP growth is now likely to come in at around 1.5 per cent for 2003, slightly weaker than the 1.75 per cent the bank predicted earlier in the year.
In its summer bulletin published today, the central bank said the euro's recent strength was continuing to hurt manufacturers by making exports more expensive on overseas markets.
Consumer spending was likely to slow and unemployment to rise as the economic downturn proves longer than anticipated, the bank said .
"Assuming that the international environment improves in the latter part of this year and that the economy does not suffer a significant further loss of competitiveness, there should be a gradual improvement in the growth rate, with overall GNP volume growth picking up to perhaps 3.5 per cent next year," the bank said.
The bank noted that pay rises across the public sector in future would be linked to productivity gains.
"Assuming that there is no further deterioration in competitiveness, however, the projected improvement in the external environment should result in some pick-up in export growth which will in turn feed into domestic demand and raise overall output growth."
Any pick-up in employment as the general economic outlook improved would be limited by slower public sector employment and any delay in private sector employment in responding to output increases.
"Overall employment levels are forecast to grow by about 0.5 per cent," the bank said.
"This is unlikely to be sufficient to stop unemployment rising further next year, although a sustained recovery in output growth, if it occurs, will eventually result in unemployment declining again."