The Economic and Social Research Institute says the economy will stop shrinking this year. Its quarterly economic commentary says a return to growth in the second half should see the year end with little or no change to gross domestic product, or economic output, compared with last year.
Finance Minister Brian Lenihan told RTE's News at One the ESRI report showed that the economy was 'turning the corner', and its forecasts for this year were more optimistic than the Department of Finance's.
The ESRI also says the cost of saving the banking system is manageable, and it warns that a rejection of the Croke Park agreement by the public service unions could lead to higher borrowing costs for the Government.
Asked about the Croke Park agreement, Mr Lenihan told RTE the Government was giving assurances - on no further pay cuts - that workers in the private sector were not receiving. Mr Lenihan said he was not making threats if the deal were rejected, but the State was borrowing to fund public sector salaries, and this was not sustainable.
Today's ESRI commentary echoes last week's from the Central Bank in nudging up expectations for the economy this year.
The ESRI says a return to growth in the second half of the year could almost cancel out the fall in the first half of the year, leaving the economy just 0.5% smaller as measured by GDP. Last year GDP fell by 7%.
Next year, the institute forecasts a return to growth of 2.75%, led by the export sector, which it says will grow by 4.5% in 2011. But the ESRI says an overall growth rate of 4% to 5% is needed to increase employment levels.
The ESRI says the cost of NAMA and the bank recapitalisations is manageable, but should never have been incurred in the first place. It says the €25 billion required by Anglo irish Bank and Irish Nationwide is equivalent to 15% of GDP.
It also warns that an increase in industrial unrest that could follow a rejection by public service unions of the Croke Park agreement may lead to a rise in the cost of Government borrowing, as international lenders may begin to doubt the commitment to reduce spending.
Lenihan won't seek to influence regulator
Meanwhile, the Finance Minister has said the Financial Regulator has the 'full confidence and support' of the Government for his actions on the Quinn Insurance company. He said he would not seek to influence the regulator in any way, and any perception that he could be subject to political influence would be damaging to the country.
Mr Lenihan also said Anglo Irish Bank had a duty to explore options with Quinn Group for the repayment of money owed to it.
The Minister also said his treatment for cancer had gone satisfactorily so far, and had not obstructed him in his duties.