The speed and severity of the deterioration in the public finances remains a source of serious concern, the Central Bank said today.
Publishing its quarterly report, the bank said the fiscal outlook is stretched with Ireland likely to have the highest general government deficit in the EU for the second year running.
The Central Bank once again revised its forecasts downwards on economic growth and unemployment.
It said that the economy will shrink by 8.3 per cent this year and by an expected 2.7 per cent in 2010.
Meanwhile, unemployment is likely to average 12.8 per cent during 2009 and will rise to 15 per cent next year.
The Central Bank also stressed that it will be 2011 before evidence of recovery is seen.
It noted that Ireland is now in its second year of recession and that the downturn deepened significantly during the fourth quarter of last year and the first quarter of 2009.
Deflation is expected to continue and may reach close to 6 per cent over the coming months, according to the bulletin.
The bank said that given the current difficulties faced by other economies the performance of Irish exports has been impressive during the first half of 2009.
While the Central Bank believes the rate of decline in output should slow next year, the relative contributions to the change in GDP are likely to mirror trends in 2009. Domestic demand will again decline significantly, driven by weak consumption and a further decline in fixed investment, particularly in the housing sector, it said.
The bank's forecast is based on a gradual recovery in the global economy next year.
