THE CENTRAL BANK has cut its forecast for economic growth in Ireland this year from 1.8 per cent to 0.5 per cent citing slowing demand for Irish exports.

The Bank says that the domestic economy will remain in recession this year in its latest quarterly economic bulletin.

It states that it expects gross domestic product (GDP) – the total value of all goods and services produced – growth will be around 0.5 per cent. Previously it had predicted 1.8 per cent GDP growth.

Meanwhile, gross national product (GNP) – the value of all services supplied by Irish residents – is predicted to decline by around 0.7 per cent. GNP is considered by some to be the more accurate barometer of economic performance in a country.

CSO figures in December showed that the Irish economy had shrank by 1.9 per cent in the third quarter of 2011 – making Ireland the worst performing economy in the European Union.

The Bank attributed the revision to a “weaker short term prospects for external demand” and said that the depth and duration of the current global economic crisis would be crucial to the prospects for Ireland’s own economy over the next year or so.

It cited the strong performance of  Irish exports in the first quarter of last year which was reflected worldwide but so too was the significant slowdown in exports in the remainder of the year.

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

However despite the forecasts, the Central Bank said that it expected “a pick-up in growth in 2013″, forecasting that there will be an increase of around 2.1 per cent in GDP terms and 1 per cent in GNP.

It also said that it expected the government to reach its target of reducing the deficit to 8.6 per cent of GDP.

“On the face of it, the consolidation measures announced in the Budget, and the somewhat better starting position for 2012, should allow the targeted reduction of the deficit to 8.6 per cent of GDP to take place, but the pattern of growth will clearly determine developments to a degree,” the Bank said.