The Economic and Social Research Institute says the Government should aim for a more rapid reduction of the budget deficit, eliminating it entirely by 2014, through more spending cuts and increased taxes.
It also says a European solution is needed to relieve Ireland of much of the costs of the banking crisis.
The ESRI says national income will grow by 0.5% this year, led by exports, with particularly strong export growth now showing in Irish owned companies.
In a more upbeat view of the economy, the ESRI says Irish-owned firms in the traditional sectors like food and drink are now seeing very strong export growth, as the pickup extends beyond the multinational sector. Service exports are also forecast to enjoy another year of strong growth.
But it says the budget deficit should be cut more rapidly, and the ESRI urges the Government to go for a zero deficit by 2014, rather than the 4.7% deficit the Government is planning. This would give it more credibility in the markets, where the Government must return by then to fund a very large rollover of debt due that year.
It says Ireland should get a cut in the bail-out interest rate from the EU without any conditions such as a rise in corporation tax, because ireland has already contributed to Europe by confining the banking crisis to within the state and limiting damage to other country's banks.
The ESRI also argues in favour of a European solution to relieve Ireland of much of the burden of recapitalising the banks, thereby reducing the overall debt burden.
Meanwhile, the Irish Congress of Trade Unions (ICTU) has rejected the ESRI's calls for deeper spending cuts, saying they would push Ireland much deeper into recession and would have 'terrible social consequences.'
ICTU general secretary David Begg also queried the body's track record, claiming that the latest call is a complete reversal of the ESRI's position in the Autumn.
'Just a few months ago, the ESRI was warning that planned Government spending cuts were too big and could tip the country into prolonged recession,' said Mr Begg.
'That was in October 2010, when Government planned to cut just €4 billion - but it went on to cut over €6 billion in the budget. And we are living with the negative consequences of this austerity, with suppressed demand and bigger job losses.
'Previously, the ESRI warned that we were going too far and too fast in terms of cuts. They said we should slow the cuts and extend the period of deficit reduction to 2016 - a proposal first made by Congress. Now they've reversed that and say we need to go much further and much faster. Which is it? To my mind, this raises questions about the credibility of the ESRI,' said Mr Begg.
He went on to say that the ESRI's latest recommendations would tip the economy into deep recession and could have terrible social consequences for very many people who are already struggling with debt and reduced incomes.
'The Institute cannot divorce itself from the consequences of what it recommends and the potential damage to peoples' lives. And ultimately, that is what this is all about - the quality of peoples' lives. It is not just an accounting exercise,' Mr Begg said.
