An outlook on the economy from Ulster Bank says Irish export growth, the primary driver of Ireland's recovery to date, is set to weaken this year.
This weaker export performance is likely to result in a deceleration rather than an acceleration in overall growth in 2012, so the bank has revised downwards its forecasts for the economy.
Ulster Bank says it is now expecting growth of just 0.2% in 2012, while the overall recovery momentum should pick up gradually again next year. The bank is pencilling in GDP growth of 1.5% for 2013.
It predicts that exports will grow by 2% this year, down from the 4.5% growth recorded in 2011 as the euro zone debt crisis hits European growth expectations hard with the euro zone likely to contract this year and only very weak growth expected in the UK.
The bank also believes that pressure from the economic slowdown will result in the average unemployment rate moving from an average of 14.4% in 2011 to 14.6% this year. It says this again highlights the fact that domestic demand continues to lag behind the recovery in the export sector.
But despite the cuts in its economic forecasts, Ulster Bank says the Irish economy is likely to outperform overall growth rates in the euro area this year. It predicts that Ireland will have a better growth rate than Italy, Spain, Belgium, the Netherlands, Portugal and Greece.
Ulster's Bank's chief economist Simon Barry says that despite the slower GDP growth expected for this year, the Government should not bring in a supplementary budget. He says that any additional tightening of fiscal policy would just add to the headwinds facing domestic demand, which is already very weak and fragile.
''An unscheduled supplementary budget would also create additional uncertainty for households and businesses as they reconsider investment, spending and hiring choices in the face of a different fiscal and economic outlook,'' the economist says.
He adds that a supplementary budget could trigger ''an intensification of the negative feedback loops between the real economy, the public finances and the banking sector''.