The International Monetary Fund has warned that the clear possibility of weaker growth than the Government anticipates could endanger plans to cut the Budget deficit.

Read the IMF's statement

The IMF said that so far Ireland has stayed the course with its radical fiscal reform plans, but added that there was also the risk that 'consolidation fatigue' could set in.

The comments came as part of the IMF’s regular review of Ireland's economy.

'Staying on target is critical to retain the hard-earned credibility,' the IMF statement said.

An IMF delegation spent two weeks in Ireland in mid-May to collect data for the report.

During the stay, the delegation met the Finance Minister and public and private sector bodies.

Finance Minister Brian Lenihan today welcomed the publication of the IMF statement ahead of publication of the full report on the country next month.

'I welcome the IMF's recognition of the credibility gained by the Irish authorities in both addressing the fiscal situation and stabilising the banking sector,' Minister Lenihan said.

Report predicts growth

Separately, a Europe-wide report out today says Ireland will have the greatest recovery rate among eurozone members next year.

Ernst & Young's quarterly eurozone forecast says Ireland will jump from its current 15th to second position in terms of GDP growth in 2011 at 2.8%. (Read the Ernst & Young report)

It sees the economy contracting by 1% this year.

It also finds that Ireland's cost base has fallen further than any other country in the eurozone in both 2009 and 2010.

Inflation rates fell by 1.7% in 2009 and the full-year forecast for 2010 is for an additional fall of 1%.

But in terms of employment, the results are less optimistic with Ernst & Young forecasting an annual unemployment rate of 12.6% until at least 2014.

It warns that unless the eurozone seriously tackles structural reforms, the risks of an economic 'lost decade' such as that of Japan in the 1990s are significant.

ESRI admits lack of expertise

Elsewhere, the director of the Economic and Social Research Institute has admitted that the agency could have done better in forecasting the country's financial crisis.

Professor Frances Ruane said lack of expertise in macro-economics, particularly in banking, meant that the ESRI lacked the specialist knowledge to see the banking crisis coming.

Speaking on RTÉ's Morning Ireland, Professor Ruane said they over-relied on the information coming from the Central Bank and Financial Regulator.

The independent think-tank celebrates its 50th anniversary this year.