Central Bank Governor Gabriel Makhlouf has said he believes the economy could recover strongly later this year with a "potential surge in demand in the second half of the year".
The Governor made his remarks in a speech delivered online to students at the University of Limerick today.
Gabriel Makhlouf repeated the Central Bank's forecasts published last Friday, which predicted an increase in Modified Domestic Demand this year of 2.9% following an estimated fall of 7.1% last year.
The Governor said the financial system has been able to absorb rather than amplify the impact of the economic shock of Covid-19.
He described the increases in Government debt and deficit ratios as 'both warranted and necessary'.
However, he also said a path to lower and more sustainable levels of debt will eventually have to be taken.
The Central Bank boss said the increase in debt and Government spending supported the productive capacity of the economy and helped to avoid scarring effects like long-term unemployment.
But he also said that headline figures of overall growth "mask the devastating personal stories of failed businesses, the hardship of households and the financial strain on families".
He also warned that the labour market will lag a recovery in the economy with unemployment forecast to remain high "even after vaccines have allowed us to return to a new normal".
Gabriel Makhlouf also told the University of Limerick event that average inflation targeting is one of the options being considered by the European Central Bank in its monetary policy strategy review.
Asked if the ECB might overshoot its target for inflation of below but close to 2%, Mr Makhlouf said it would not do so unintentionally.
But he said it was possible that in future it might follow the US Federal Reserve in allowing overshooting at times to maintain a target average rate.
"The ECB has not decided to do that, but it's one of the issues we are looking at" in the ECB's monetary policy strategy review, he added.