The Organisation for Economic Co-Operation and Development (OECD) has said that the Irish economy will barely expand at all this year.
In its latest forecast, the Paris-based think tank said GDP growth will be just 0.1% this year and 1.9% next year.
Its projections show that unemployment will remain high at 13.2% in 2014.
The OECD said Ireland may miss its target of cutting the deficit to 3% of GDP in 2015 which has been a cornerstone of its recovery plans. The OECD predicted the deficit would be 3.1% in 2015.
However, the think tank said that Ireland has successfully emerging from the bailout. "Economic activity is showing signs of revival and is projected to gradually strengthen in 2014 and 2015," it added.
But in its latest snapshot of economic activity, it warned the Government not to deviate from plans to reduce the amount of money it borrows every year. It has also said more needs to be done to repair the banking system.
It also said that getting the long-term unemployed back to work should be prioritised to reduce the risk of high unemployment "becoming structural". Construction workers should be especially encouraged to learn "the skills and competencies demanded by job creating sectors", it urged.
OECD calls on ECB to buy euro zone assets
The European Central Bank must consider buying government and corporate bonds to help the euro zone avoid a Japanese-style deflationary spiral, the OECD said today.
It was a direct call for the ECB to undertake quantitative easing (QE), a policy that currently divides the bank, in the face of what the think-tank said was a risk of deflation.
Inflation in the euro zone fell to its lowest in nearly four years in October, with the economy struggling to recover strongly after emerging from its longest ever recession.
Despite a surprise ECB rate cut this month, the Organisation for Economic Co-operation and Development said in its latest economic outlook that the bank needs to take bolder measures at a time of massive unemployment and difficult credit.
"Risks of deflation may be slowly increasing," OECD chief economist Pier Carlo Padoan said. "The ECB must be very careful and be prepared to use even non-conventional measures to beat any risk of deflation becoming permanent," he said.
Under its statutes, the ECB is banned from buying bonds directly from governments but can find ways to purchase them from banks, for example, on the secondary market or accept them as security in return for finance.
The euro zone is still far from the deflation that Japan suffered from the early 1990s, when falling prices weakened demand, leading to wage cuts and even lower prices.
But Ireland, Cyprus and Greece all registered deflation in October and for the euro zone as a whole, consumer prices actually fell in October from September, by 0.1%.
The OECD's call follows comments by ECB executive board Member Peter Praet in an interview this month that asset purchases were one of the tools available to the central bank beyond interest rate cuts.
The comments signalled that the ECB, having cut rates so low and provided liquidity to banks, may be considering the controversial move of asset purchases because it has few other options, although it is not clear if that would emulate the US-style quantitative easing programme.
The ECB injected more than €1 trillion into the banking system via ultra-cheap three-year loans in December 2011 and February 2012, known as LTROs.
The ECB has run its own bond purchases programmes in the past but has always withdrawn an equivalent amount of money from markets - in effect not printing new money - to ensure its interventions have no impact on the money supply for fear of pushing up the rate of inflation.
With inflation at 0.7% in October and well below the ECB's target of just below 2%, that argument has been greatly weakened.
The OECD painted a sobering picture in its outlook for the euro zone as the bloc tries to recover from the public debt and banking crises that nearly shattered the currency area.
Economic output is set to grow just 1% next year after contracting 0.4% in 2013, while the unemployment rate will not fall until 2015, the OECD said, putting its forecasts largely in line with the European Commission.
However, the OECD sees annual inflation at 1.2% in 2014 and 2015, below the Commission's latest forecasts of 1.4% and 1.5% respectively.
OECD sees emerging markets holding back world recovery
Meanwhile, slowing emerging markets are dragging on the world's economic recovery and advanced countries are struggling to pick up the slack after years of debt crises, the OECD said today, trimming its global growth forecasts.
In its latest snapshot of economic activity, the Paris-based Organisation for Economic Cooperation and Development forecast the world economy would grow 3.6% next year.
Though an improvement from the 2.7% expected for 2013, that was not as fast as the 4% estimated for 2014 in its last twice-yearly Economic Outlook dating from May.
"We've lowered our forecasts for many reasons, but the most important one is the downgrade in growth in the emerging countries," economist Pier Carlo Padoan said, also citing slower trade and subdued investment.
Padoan said advanced economies would not be able to make up for the momentum lost by many major emerging economies, hit by capital outflows triggered by the US Federal Reserve's plans to rein in its exceptional monetary stimulus.
"The US is growing but they have to get their fiscal act together," Padoan said. "The euro area is becoming a positive growth region again but at very weak rates, and Japan is growing more but the question is whether this will be sustainable."
The OECD said the Fed should scale down its bond purchases as activity strengthens next year, forecasting that growth in the world's biggest economy would reach 2.9% in 2014, its strongest performance since 2005, after an estimated 1.7% this year.
Despite the improving US outlook, the OECD saw a major threat to the global recovery if the US hit its debt ceiling, adding there was a "strong case" to scrap it all together.
The OECD sharply revised up its growth forecasts for Britain and predicted the Bank of England would start to raise interest rates in late 2015, when unemployment is expected to fall to 7%. The OECD now expects growth of 2.4% next year, compared to its earlier forecast of 1.5%.
"Given these projections, slack in labour and product markets will narrow and the stance of monetary policy should start to normalise in the last quarter of 2015," the OECD said.
New BoE forecasts last week suggested unemployment would hit 7% in the second half of 2015, based on current market interest rates, but Governor Mark Carney stressed that this would not automatically trigger a rate rise.
Propelled by exceptional monetary surplus this year, Japan was on course for growth of 1.5% next year, up from a May forecast of 1.4%, but down from 1.8% in 2013.
Meanwhile, the OECD trimmed its growth forecast for China next year to 8.2%, from 8.4% previously, but still higher than an estimated 7.7% this year.