Ireland’s central bank has cut its 2012 growth forecasts, raising doubts about the strength of the recovery in the country, which emerged from recession last year.

The bank blamed the intensification of the eurozone debt crisis and a slowdown in export demand for its prediction that the economy would grow by just 0.5 per cent this year, down from a forecast made in October of 1.8 per cent.

Gross national product, often seen as a better measure of Irish economic activity because it strips out the dividends and profits repatriated by local subsidiaries of foreign companies, is forecast to fall by 0.7 per cent.

Ireland’s return to growth in the first half of 2011 after three years of recession has prompted European leaders to position Ireland as an example of a country that can continue to grow while implementing austerity measures. But the eurozone crisis threatens the recovery and makes it more difficult for the country to meet European Union and International Monetary Fund bail-out targets.

“The slowdown in the external environment has occurred against the background of an intensification of the sovereign debt crisis, the effects of which have now broadened beyond the financial system to the wider economy,” said the bank in its quarterly bulletin.

The bank said Ireland’s competitiveness was continuing to improve. This was mainly due to depreciation of the euro rather than through any further declines in wages. But it said progress was required on structural reform to improve efficiency in the provision of public services and increase levels of competition in the private sector.

“Weaker external demand means that making gains in market shares is more critical than ever in terms of generating significant overall export and output growth,” it said.

It said Dublin was on track to meet its 2012 budget deficit reduction target of 8.6 per cent of gross domestic product but the slowdown makes 2013 fiscal targets more difficult to attain.

The bank expects growth to pick-up in 2013 to about 2.1 per cent.

It predicts slower export growth this year and an increase in unemployment to 14.6 per cent, falling to 14.1 per cent next year.

The bank said the debt crisis had exposed weaknesses in European economic governance, which were not evident in more favourable times. It said actions had been taken to address the crisis but warned that markets remained weak and output growth was weak.

“It is clear that the cumulative impact of all these actions is not yet sufficient to convincingly dispel uncertainty about the ability of Europe to deal effectively with the challenges posed by the crisis,” it said.

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