Finance halves its forecast for growth this year to 0.7pc
Despite poorer outlook, Government expects to get deficit down to 8.3pc of GDP this year without further budgetary measures
The Department of Finance yesterday almost halved its economic forecasts for 2012 but insisted that Ireland remained on track to beat its 2012 bailout targets.
The downward revision was revealed in the latest 'stability programme update', which also shows the state plan to issue 'longer-term' debt before the year is out after first dipping its toe in the water with short-term bonds.
The Government cut its forecast for GDP growth to 0.7pc in 2012, against a forecast of 1.3pc given in December. GDP forecasts for 2013 have been cut from 2.4pc to 2.2pc.
"Prospects for domestic demand have weakened in the past few months, while external headwinds remain significant," the document said.
"The nascent recovery is expected to both broaden and gain ground in 2013."
Despite the poorer outlook, the Department of Finance expects to gets Ireland's deficit down to 8.3pc of GDP this year, without any further budget measures.
If that happens, it would be 1.1pc better than 2011's and 0.3pc beyond the bailout demands.
The predictions came as ratings agency Standard & Poors affirmed its credit rating for the Irish sovereign, saying the Government had responded in a "proactive and substantive way" to the worsening economic and banking crisis.
Ireland is still rated BBB+ with a "negative outlook", but the ratings agency commentary was largely positive as it said there was only a one-in-three chance of a downgrade during 2012 or 2013.
This year has already benefited from a €1.2bn rise in exchequer returns in the first quarter, as fees from the bank guarantee scheme were higher than expected and various technical effects contributed to a €1bn rise in corporation and income tax.
The Department of Finance's outlook describes the 8.3pc of GDP figure as an "early point-in-time estimate" and says that while the government is "satisfied" that targets will be achieved "considerable challenges" remain.
The EC/ECB/IMF bailout programme mandates the Government to getting Ireland's deficit-to-GDP ratio to below 3pc by the end of 2015 -- yesterday's document says the Irish authorities remain "fully committed" to that plan.
The "scale and the speed of the adjustment will depend on the economic situation prevailing at the time", the document adds.
The document also points out that the existing bailout arrangements for the former Anglo Irish Bank require Ireland to accrue interest at a rate of €2bn a year from 2013 on the IOUs used to rescue the bank.
The Government is actively trying to renegotiate these IOUs.
Any deal could reduce the interest cost the Government must book, making the targets for 2013, 2014 and 2015 easier to hit.
The document also details Ireland's plans for a "gradual" return to the markets beginning with the sale of short-term bonds over the summer.
"The NTMA (National Treasury Management Agency) remains in regular contact with a broad range of market participants and, conditions permitting, is seeking to gradually extend its presence in the short-term debt market before seeking to raise longer-term debt later this year," the Department of Finance said.