The Central Bank has reduced its growth forecast for this year due to weaker demand for exports.

The bank expects the economy to grow by 1.2% in 2013, but predicts an expansion of 2.5% next year.

In its latest quarterly bulletin it said there will be a small growth in employment this year and unemployment will drop below 14% in 2014.

Echoing criticisms by the IMF earlier this week, the bank said slow progress by Irish banks in dealing with bad loans has prolonged uncertainty about the financial sector.

It said this has delayed durable solutions for distressed borrowers.

The Central Bank has also sent a warning to Government to stick with its Budget plans.

It said: "Full implementation of the announced budget measures remains essential to preserve market confidence and to keep a buffer against negative shocks."

The Central Bank said Ireland's competitiveness has moved in the right direction, but further improvements are required to return the country to sustainable growth.