The Economic and Social Research Institute says the economy should grow at the same modest level as last year.
In its latest quarterly economic commentary, the ESRI says that while austerity measures are having a damping effect on economic activity, the Government has few policy options to stimulate growth.
The ESRI believes Irish GDP grow by 0.9% last year and expects a similar level of growth this year. It says the volume of output in the Irish economy in 2011 was at levels last seen in 2005. For GNP - which strips out the effects of foreign multi-nationals - output was similar to 2003 levels.
The institute says the main uncertainty overhanging the performance of the Irish economy this year continues to be the international environment, particularly the euro area.
It is predicting that growth will pick up to 2.3% next year, with GNP growth of 1%. Foreign trade will drive growth, with the ESRI expecting a further - albeit more moderate - decline in the domestic economy this year.
Because the domestic economy is more important for job creation, the ESRI predicts a further decline in employment levels.
In its commentary, the ESRI challenges the view that austerity is not working, saying austerity measures are absolutely necessary to restore the public finances to sustainable levels. It says that, given the scale of government debt, there is no alternative.
But it warns that austerity is the wrong policy if it is applied to every country in the euro zone at the same time. It says the model which suits German economic policy - keeping a tight rein on domestic demand to encourage firms to seek export markets - cannot work if all countries are doing it at the same time.
It says funding from the troika provides a brief window of opportunity for growth- enhancing structural reforms. It says the deterioration of the global economy makes that adjustment more necessary, as Ireland cannot rely on favourable growth elsewhere to pull itself out a downward trend.
In particular, it says, prices have not fallen in the non-traded sectors of the economy, such as health and energy costs, which act as a brake on reductions in nominal wage levels.
"Without funding from the troika, Ireland would not be in a position to maintain even the present reduced levels of expenditure. This is a reality that appears to have been lost on some," the ESRI says.
In a separate article in the quarterly review, ESRI research professor Tim Callan says that while Budget 2012 imposed greater percentage losses on those with low incomes, the austerity measures since the start of the financial crisis have mostly been borne by high income groups.
The paper says that since October 2008, losses imposed by tax and welfare policies have been greatest for those on high incomes, with a lesser impact on middle income groups and the least impact on those with low incomes. It says the same pattern prevailed in public sector pay cuts, with the higher paid bearing the brunt.
It says a comparative study of austerity measures in six EU states - Spain, Greece, Portugal, Estonia, Ireland and the UK - showed Ireland to be among the most progressive in its policy response, pointing out that in Greece pension cuts were a major feature of the austerity programme, and that the elderly were hardest hit.
In Ireland and the other countries surveyed, the elderly were least affected, while families with children fared worse than the average.
