Bank of Ireland has predicted that the economy will grow by as much as 3% this year and that 40,000 jobs will be created.

This is in sharp contrast to recent forecasts from other organisations such as the ESRI, which has predicted no growth in employment at all.

However, Bank of Ireland Chief Economist Dan McLaughlin insisted today that strong employment growth in the services sector would more than compensate for job losses in the construction sector.

He also said that the economic slowdown is likely to cost the Government €1bn in tax shortfalls this year.

Bank of Ireland has been consistently among the most optimistic forecasters of the Irish economy, and today's report from Mr McLaughlin is no exception.

He thinks the economy will grow twice as fast at predicted two weeks ago by the ESRI and says that there is no question of jobs growth grinding to a halt.

The report also expresses surprise about the level of food inflation in Ireland, which is higher than the European average. It points out that one third of Ireland's food imports come from the UK and that the cost of these imports should be falling because sterling has gone down in value against the euro.

The bank is sticking to its earlier prediction that the European Central Bank will cut interest rates twice during the second half of this year and that as a result interest rates will end the year 0.5 points lower than they are right now.