The European Commission has said that Ireland's GDP is projected to contract by 8.5% in 2020.
The economy here is then expected to grow by 6.25% in 2021, on the back of the pent-up domestic demand release and the global post-crisis recovery.
This compares with the Commission's earlier forecast of a downturn of 7.9% for this year and a recovery of 6.1% for next year.
In its latest Summer economic outlook, the Commission said that economic activity here is expected to have plunged in the second quarter of the year due to the Covid-19 pandemic and its associated lockdown.
It noted that private consumption is set to be particularly hit, since the quarantine measures here were "long and wide ranging".
On the production side, the Commission said that some economic activities resumed earlier than initially envisaged, limiting somewhat the domestic economic fallout.
Official unemployment remained low at about 5.3% in the second quarter of 2020.
Covid-adjusted unemployment figures, which include people who are receiving unemployment payments after losing their job because of the pandemic, surged to 28.2% in April, before declining to 26.6% in May and 22.5% in June.
It said that fiscal stimulus released in the second quarter to support households and businesses is expected to have dampened the decline in real GDP.
Fiscal policy is set to remain supportive in the second half of the year, the Commission said.
"However, the spread of the global pandemic, which caused a marked decline in exports in April, has also weakened the prospects of exports for the second half of the year," the Commission added.
The Commission also said that the country's economic outlook remains affected by specific uncertainty around Brexit, potential changes in the international taxation environment and the activities of multinationals registered here.
Today's forecast from Europe is slightly more optimistic than that of the Government. At the end of April the Department of Finance's Stability Programme Update predicted a fall in real GDP of 10.5% this year, with a recovery of 6% next year.
The European Commission also said that the euro zone economy will drop deeper into recession this year and rebound less strongly in 2021 than previously thought.
France, Italy and Spain are struggling the most due to the COVID-19 pandemic, it noted.