Issues around credit availability and the frailty of the euro zone banking system are the biggest threats to an external economic recovery in Ireland, according to the latest Friends First Economic Outlook.

The publication anticipates a gradual recovery for Ireland’s economy, as long as policy-makers maintain apply the “appropriate stimulus” while maintaining a strict fiscal policy.

It forecasts GDP growth of 0.3% this year and 2.1% in 2014, with GNP expected to grow by 1.1% in 2013 and 1.8% next year.

The Friends First report also sees unemployment falling to 12.5% in 2014.

Jim Power, chief economist at the firm, said the external environment was improving and so a recovery was on the cards.

However he said the lack of credit availability for small and medium-sized businesses was “a major source of concern” as the expansion of this sector was vital for the country’s economic growth.

Mr Power also warned against hyping up the tentative signs of growth in Dublin property, which he said was not reflective of the overall market.

“Real caution is now required before we talk ourselves into another bubble”, he said. “A housing shortage and rising prices in certain areas of Dublin does not constitute a recovery in the housing market.”