The Central Bank has lowered its economic forecasts for this year, though it says the economy will stabilise after a 'severe and protracted' contraction during the past two years.

In its quarterly economic bulletin the bank says it expects gross national product (GNP) to fall by around 1.7% this year, with gross domestic product (GDP) growing by 0.2%. These forecasts compare with GDP growth of 0.8% and a fall in GNP of 1% in the bank's last bulletin in July.

The Central Bank also said the forthcoming Budget would need to include a bigger adjustment than the €3 billion expected until recently. It also urged the Government to provide more details on how it planned to tackle the public finances, saying this would help bring borrowing costs down.

'This would particularly be the case if a consensus, or at a minimum acceptance, were to emerge around the details of a credible reprogramming of the adjustment,' it added.

Exports only growth area, says report

The Central Bank says the recovery is unbalanced, with growth taking place only in exports, as domestic demand continues to fall. It says consumer demand remains weak, affected by lower incomes and unemployment.

GDP includes profits from multi-national companies based here, and the Central Bank says the strength of exports, as well as increased interest payments on foreign debt, are leading to the big differences between the GDP and GNP figures.

The Central Bank's forecast for unemployment is unchanged since July. It says labour market conditions remain weak and that the average rate of unemployment will be 13.5% this year, falling to 13.3% next year. The bank says emigration and lower participation in the labour force are helping to keep the unemployment rate down.

The bank has lowered its GDP growth forecast for next year to 2.4%, with GNP expected to grow by 1.7%. It says a strong recovery in world demand has eased in recent months, but the outlook is still positive.

It says lower prices and costs are boosting Ireland's competitiveness, while a stronger sterling in the second quarter of the year had helped many Irish exporters, particularly in the food sector.

The bank says investment remains very weak, particularly in the construction sector. It says the volume of residential building is likely to fall by 35% this year and another 6.5% next year. It expects around 13,000 new homes to be completed this year, falling to 10,000 next year.

Cowen looking for 'othre ideas' on Budget

Taoiseach Brian Cowen has said today's growth forecast figures from the Central Bank are in line with those forecast by the Department of Finance last December.

When asked if the Government was in a position to re-open the Croke Park pay agreement, Mr Cowen said it had not discussed any changes to the deal with the people with whom it was agreed.

He added that the Government was trying to prepare a correction to the public finances for the next four years in a way that was consistent with the agreements reached so far.

Speaking before the EU-Asia summit in Brussels, Mr Cowen refused to be drawn on whether the cuts in the forthcoming budget could exceed €4 billion. He said he was anxious to hear 'other ideas' from interested parties which were consistent with the budgetary targets over the next four years.