The greatest stimulus the Government could give the economy would be to signal an easing of fiscal austerity, according to a new economic report from Friends First.

The report says that while there are some signs that Ireland's economy is stabilising, and that a slow recovery is underway, challenging conditions remain, especially outside Dublin.

Friends First says signalling an easing of austerity measures would have a massive impact on consumer and business confidence.

The report also says that euro zone instability is the biggest threat to Ireland's recovery. It says that until external demand improves, it is unlikely that Irish consumers will be tempted back into the shops.

''The prospect of a further €5.1 billion being extracted from the economy over the next two budgets is quite ominous for consumers - it is not at all clear where the axe can or indeed will fall,'' commented Friends First's chief economist Jim Power.

Today's report predicts GDP growth of 1.5% for this year, followed by growth of 2.5% in 2014. Consumption will inch 0.2% higher this year and will see growth of 1% the following year.

It also predicts that unemployment will ease from a level of 14.7% last year to 14% this year and falling back a level of 13.7% in 2014.

Exports will grow by 2.3% this year, while 2014 will see growth of 3.4%, while imports will increase by 1.5% in 2013 with growth of 2.5% pencilled in for next year.

Today's report also suggests that the omens for the coming year in the residential property market remain very uncertain and quite mixed, as credit availability remains very difficult while the introduction of the local property tax may deter some buyers.

The life assurance company also urged the Government to set a deadline for its first big policy decision in order to increase private pension provision. It said it was imperative that policymakers stop ''prevaricating'' and put a system in place that will ensure adequate post-retirement income for everyone.