THE IRISH economy will grow by just 1.7 per cent next year, advisory firm Ernst & Young said yesterday.

In its Economic Eye report, the accountancy and consulting firm has revised down the 2011 GDP forecast for the Republic from 2.8 per cent to just 1.1 per cent growth.

Speaking at the launch of the all-island report yesterday, Ernst & Young’s Graham Harrison said Ireland was developing a “two-speed economy.” He said that while exports are forecast to grow, public spending cuts, a weak construction sector and pressures on consumer spending mean that the domestic economy will struggle.

The quarterly report forecasts that exports will equate to 100 per cent of GDP by the end of 2010.

Mr Harrison warned however that, “exports can only deliver so much. To reduce unemployment faster, there will need to be greater domestic demand and job creation.”

The report confirms that the Republic’s deficit is expected to exceed 30 per cent of GDP for 2010 with the inclusion of the bank bailout cost, giving us the worst fiscal position across developed nations, including Greece.

Commenting on the figures, Ernst & Young senior advisor Neil Gibson said that, while the Irish Government has done much to ease fears that no rescue package will be required from the EU or the IMF, “international confidence remains uncertain. We have yet to approach foreign markets for funding since the bank bailout details were released.”

The report predicts that unemployment will rise for a further two years, and will remain at 10 per cent until at least 2018.

It estimates that peak employment levels will not return until 2024.

Regarding the property market, it predicts that jobs uncertainty and net migration will see house prices drop again in 2011.

Mr Harrison said that, “in contrast to UK house prices which are expected to return to peak values by 2013, housing in the North and in the Republic will not regain peak 2008 values until 2020.”

The report concludes that Ireland will not meet the target of reducing the deficit to 3 per cent of GDP by 2014, missing it by 2.6 per cent.