The Economic and Social Research Institute has forecast that the economy will stop contracting this year.
In its quarterly economic commentary, the ESRI says a return to growth in the second half of 2010 could almost cancel out the fall in the first half of the year, leaving the economy just 0.5% smaller as measured by Gross Domestic Product. Last year GDP fell by 7%.
Next year, the Institute forecasts a return to growth of 2.75%, led by the export sector, which it says will grow by 4.5% in 2011.
However it says an overall growth rate of between 4% and 5% is needed to increase employment levels.
The Institute also said the cost of saving the banking system was manageable and it warned that a rejection of the Croke Park agreement on pay and reform by public service unions could lead to higher borrowing costs for the Government.
The commentary from the ESRI echoes what the Central Bank said last week.
The ESRI says the cost of NAMA and the bank recapitalisations is manageable, but should never have been incurred in the first place.
On RTÉ's Morning Ireland, Dr Alan Barrett, a co-author of the report, said the forecast growth for next year of up to 2.75% would not be enough to grow employment.
However he said the number of jobless will come down.
Minister for Finance Brian Lenihan has said that the economy is stabilising and that we have turned a corner.
He was speaking as figures today show the first year-on-year growth in the volume of retail sales in over two years.
Mr Lenihan said consumer confidence was returning, but said we have 'a bit to go'.
Getting back to a position of job creation all depended on us being competitive as a country, he said.
He said the one great difficulty that the country had faced was that the construction industry had 'taken a bang'.
