The Central Bank has revised down its growth forecasts for the Irish economy for this year.
In its latest quarterly economic forecast, the Central Bank says the effect of higher taxes and falling employment will depress consumer spending, keeping the economy weak.
Read the Central Bank report in full here
The bank anticipates that the economy will grow by just 1% this year and 2.3% in 2012. In October it had been predicting growth of 2.4% for 2011.
However, it says any turnaround in employment will not happen until late this year and forecasts the unemployment rate will rise to 13.7% this year. It will remain above 13% in 2012. The labour force is set to contract by almost 1% this year.
In its first commentary after the EU-IMF intervention and the Budget, the Central Bank says the effect of the extra money taken out of the economy in higher taxes and reduced spending will contribute to weaker growth than it had forecast in October.
It is now forecasting GDP growth of just 1% for this year, compared with the Government's estimate of 1.7%. The central bank says GNP, which better reflects the domestic economy, will stay in negative territory with a contraction of -0.3%.
It also warns that cost competitiveness needs to be boosted further, and unit labour costs have not come down enough.
Central Bank reviews banks' SME lending
A Central Bank report has said bank boards should become more involved in planning their strategies for lending to small and medium-sized businesses (SMEs).
The bank today published the findings of a review of banks' SME lending strategies, which involved six banks.
The review found no evidence that banks had reduced their credit standards in an effort to meet SME lending targets set by the Government. But it found that some banks had completed a limited number of credit reviews in the last two years. The Central Bank said this type of control should take place regularly.
The review said the bank was encouraged by moves by banks to set up training programmes to help their staff make better lending decisions when dealing with SMEs.
'Lending to SMEs requires particular skills, and banks need to develop these in order to price risk and manage it effectively. SME lending plans should therefore demonstrate that banks have thought through these risks,' said the Central Bank's director of financial institutions supervision Jonathan McMahon.
