A new report on the Irish economy says it is continuing to head in the right direction, although the eventual recovery in consumer spending is predicted to be slow and gradual.
In its latest quarterly economic outlook, Bloxham Stockbrokers says that after an estimated GDP contraction of just over 7% last year, a much more modest decline of less than 1% is forecast for this year.
Bloxhams notes that after a disappointing January - which may have been affected by the severe cold snap - Irish economic activity appeared to pick up in February.
However, today's report says that the near-term outlook for the Irish economy 'remains very challenging' with questions still hanging over the banking sector.
'Until that sector returns to some sort of 'normal' lending practices, it is difficult to see the economy maximising its potential and/or a serious dent being made in reducing the numbers on the dole queues,' the report says.
Bloxham says the measures introduced by the Government, including NAMA, to support the financial system reflect the need to minimise the risk of damage to the real economy. The stockbrokers say the measures should create the conditions that will enable banks to expand lending to creditworthy borrowers, while at the same time ensuring sufficient capital and liquidity buffers to project the stability of the banking system.
The report says that although further job losses are likely in the first half of this year, Bloxham does not forecast a major rise in the jobless rate in 2010 and believes we are close to a peak in the unemployment numbers.
The report says that the building industry continues to experience difficulties and it predicts that it will continue to be a drag on economic growth 'for some time to come'. It also says that house prices are likely to fall by a further 10-15% this year.
It says the export sector will be the key player in the country's recovery over the next few years. It says that the trade performance last year was quite impressive by international standards, but warns that we can not afford to rest on 'our laurels'.
'Further significant cost adjustments need to be made so that a leaner and meaner Irish export model can maximise the potential external trade gains for the country,' the report states.
Bloxham also says that from an Irish perspective, it is critical that the US economic recovery holds up.
