The Central Bank's latest report says the outlook for the economy remains good, but inflation is set to stay above the euro zone average.
Its quarterly bulletin forecasts growth in gross national product of 4.75% this year, sharply lower than the 5.75% it forecast earlier this year.
The bank sees an average inflation rate off 4.75% this year, saying that a high reliance on imported oil and strong domestic growth have led to increased inflationary pressures.
It describes this trend as worrying, as prices have increased rapidly at the same time as productivity growth has weakened.
The bank said this would affect competitiveness further, adding that a loss of competitiveness had already contributed to a 'muted' export performance. It believes this trend could become problematic if it persists.
'It would be difficult to maintain growth rates at a high level or increase incomes per capita in a situation where the exporting sectors of the economy are not performing well,' the report warns.
Referring to recent high-profile job losses, the bank says the focus should be on ensuring a favourable climate for new businesses and making sure workers have the training and skills to match any new job opportunities.
Meanwhile, in its latest report on the Euroland economies PricewaterhouseCoopers says it expects Ireland's economic growth to slow to 5.4% this year, from 6% last year, and for GDP to deteriorate further to 4.6% in 2008.
PwC says this pattern of slowing is in line with the Euroland trend for the next two years and it expects growth to slow in the eurozone to 2.4% this year and 2.2% in 2008.
