Ernst & Young has lowered its forecast for Ireland's economic performance this year. It now believes that Ireland's economic output - measured by gross domestic product - will fall by 2.3% this year.

E&Y says net exports are expected to contribute positively to growth in 2011, but continued weakness in domestic demand will act as a drag on the economy.

Consumer spending, government consumption and investment are all forecast to decline by 4.1%, 3.8% and 15.7% respectively in 2011, according to E&Y's Economic Eye report.

The report also claims that it will take around two decades for Ireland to return to the peak employment levels experienced during the boom years.

Neil Gibson, senior advisor to the Economic Eye, says its forecast is at the lower end of market expectations. He argues, however, that it is a more realistic reflection of the severity of the downturn in Ireland.

The report predicts that Ireland will secure a one percentage point cut in the interest rate on its bail-out loans. It also forecasts that the maturity dates for the loans will be extended, with possible 'haircuts' on part of the debt. Mr Gibson says Greece is likely to negotiate a similar deal.