The Central Bank today revised down its forecasts for economic recovery.
The authority’s latest bulletin warned Ireland would continue to suffer as improvements in the rest of the world are hit by a loss of momentum.
Banking chiefs said the economy, including foreign businesses measured by gross domestic product (GDP), would grow marginally by just 0.2% over the year. Irish-only industry, measured by gross national product (GNP), is expected to fall by 1.7%.
Next year the Central Bank believes GDP will grow at 2.4% and GNP at 1.7%.
The authority’s summer bulletin in July had forecast GDP of 0.8% and GNP of -1% this year and respective growth of 2.8% and 2.2% next year.
But with a €50bn bank bail-out bill and high cost of government borrowing, the quarterly report warned the biggest challenges facing the country are tackling the underlying fiscal problems, getting banks back to normal and regaining lost competitiveness.
It said that the global economic recovery has been hit by a loss of momentum and emphasised that the path back to growth will be gradual and uneven.
On the wider financial sector, the Central Bank said trading conditions facing Irish banks in the market for wholesale funding remain difficult.
“This reflects concerns about both the banking sector itself and the broader fiscal situation in Ireland,” it said.
The Central Bank said the banking system needs to be put back on a sound footing to assist in the recovery of the economy.
It reiterated its belief that the Government needs to save more than €3bn from state running costs in the December Budget.
And it called for a review of the Department of Finance’s path for adjustments to be completed as a matter of urgency. The Bank said it should take account of generally lower prices in the economy, higher debt servicing costs and the prospect of lower-than-projected growth next year.
The Bank went on to call for further wage restraint to drive down costs even further.
“During the boom years, prices and wages moved to unsustainably high levels relative to the country’s trading partners,” the report said.
“There has been a noticeable improvement in conventional measures of competitiveness, such as relative unit labour costs, in the last two years.
“The underlying strengths that were built up in the earlier years of strong growth in the 1990s largely remain in place and these can contribute positively to growth once wage and price competitiveness is more fully restored.”