Economic think tank, the ESRI, has said the Irish economy could return to an average annual economic growth rate of 5% between 2011 and 2015 - but only if the world economy recovers quickly.
In new research outlining economic recovery scenarios, the Economic and Social Research Institute also warns that even after recovery happens, the Irish economy is facing into a permanent 10% drop in economic output.
The ESRI says that by the end of next year, output will have fallen back to 2001 levels. It says a significant number of domestic actions must take place here before economic recovery can happen.
These include the resolution of the banking crisis, and the introduction of measures to ensure unemployment does not become structurally embedded in the economy.
It also says the Irish economy must become more competitive, through a reduction of wages and other labour costs.
The institute also says reforms promised in this year's and next year's Budgets must be implemented in order to reduce the structural deficit. The structural deficit is the shortfall between our exchequer income and spending, which is not caused by the global downturn.
The ESRI says half of our deficit is structural and to address that, higher taxes will have to become a permanent feature of our economy.
The institute says there is potential for 3% growth in the economy. And so if these reforms happen, and the world economy recovers momentum in 2011, the ESRI believes economic growth here between 2011 and 2015 could be rapid - in the order of around 5% on average each year.
If this scenario were to unfold, it says, unemployment could be reduced from a peak of 17% next year, to around 7% by 2015. But it says it will still take until the middle of the next decade for output to return to 2007 levels.
But under a second scenario, where the global economic recovery were delayed until 2012, the ESRI says the permanent loss of output in the economy would be closer to 15%, there would be higher emigration and unemployment would be slower to fall.
This scenario would also require more severe budgetary action from 2011 onwards, to reduce the structural deficit further.
The research also estimates that the cost of cleaning up the banks could increase the national debt by 40%. But it also believes that while resolving the banking crisis could take some time, the long term cost to the state of doing so will be small, relative to the size of the national debt built up by borrowing to run the country.
