Employers' group IBEC has said the fall in economic output next year may not be as big as feared, as the world economy pulls out of recession.
In its quarterly economic review, IBEC forecasts that economic output will fall by 1.6% next year, with the economy emerging from recession.
It predicts growth of 1.7% in 2011.
Economist Fergal O'Brien said 'our worst fears may turn out to have been just a little overcooked'.
IBEC still expects consumer spending to drop by 3% next year, though it says unemployment will stay below 14%.
The organisation says the rate of unemployment is being contained by a fall in the labour force, mainly due to the return of emigration.
The body expects exports to provide the main impetus for recovery, growing by 3% in 2011.
However, Mr O'Brien warned that there were still big problems in the Irish economy, as the Exchequer deficit was unsustainably high and growth in costs had eroded competitiveness.
'Ireland has no option but to cut our cost and wage levels closer to those of our trading partners,' he said.
