THE IRISH economy is set to return to growth this year, Ulster Bank said yesterday, but it cut its forecasts as the global outlook deteriorated. In its latest quarterly economic update, the bank said it expected real gross domestic product (GDP) to grow by 0.3 per cent instead of a previously forecast 0.5 per cent rise.

It blamed weaker than anticipated growth in international markets, with major trading partners, including the US, UK and euro zone, scaling back forecasts for economic activity on the back of the recent deterioration in financial markets.

The Irish recovery is seen as heavily dependent on exports, which rose by 6.3 per cent in 2010 and enjoyed annual growth of more than 7 per cent in the first quarter of the year. This has helped support the economy against a background of weak domestic demand.

“The buoyancy of the export sector has compensated for ongoing weakness in domestic demand with the result that overall GDP has stabilised over the year to March,” Ulster Bank said.

“More sluggish growth abroad implies a less favourable outlook for Irish exports, and we have lowered our forecasts accordingly.”

It anticipates growth in GDP will accelerate next year, although at a slower pace than previously predicted, as the drag from domestic demand diminishes and the trade sector provides support.

Ulster Bank predicted growth of 1.5 per cent in 2012, down from previous estimates of 2 per cent.

Gross national product, which excludes repatriated profits of multinational firms, is expected to fall by 0.8 per cent.