A significant reduction in public expenditure is needed to bring the public finances to a stable pattern, the Economic and Social Research Institute said in its Quarterly Economic Commentary, published on Friday.
The think tank says if there were no government debt and hence no interest payments, the budget deficit would still be large as day-to-day expenditure continues to outstrip revenue. Although public finances have improved so far this year, the scale of the adjustment required is still substantial.
The situation on the expenditure side is particularly difficult, as some of the main expenditure areas, such as health and social welfare, are demand driven, the institute said.
The institute said the Irish economy can be described as "bouncing along the bottom." It forecast the economy to grow 1.8 percent this year and to improve further to 2.1 percent next year. The weakness of the domestic economy means that unemployment will remain high, it said.
The institute has lifted the 2012 growth forecast from 0.6 percent, but slightly trimmed the next year estimate from 2.2 percent.
The gross national product, which is a better measure of Ireland's economic performance than GDP, is expected to fall marginally by 0.2 percent in 2012. Next year, GNP growth is predicted be positive at 0.7 per cent, reflecting stronger exports of goods and services and some pick up in investment.
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