Ireland's economy may only expand by 0.9 per cent in 2011, the European Commission said today, only half of what the Government predicted in its four-year plan.
In the four-year plan, which was published last week, the Government said real gross domestic product will grow by an average of 2.75 per cent in the years between 2011 and 2014. It said real GDP is expected to grow by 1.75 per cent next year, after falling 2 per cent this year.
The commission's figures were part of a report on the wider EU. It said GDP in Europe may weaken to 1.5 per cent in 2011 as budget cuts to stem a mounting debt crisis hurt consumer demand and faltering global expansion curbs exports.
The recovery is "making progress," though the "shock of the global crisis still casts its shadow over the economy," the commission said. "The level of uncertainty for the outlook continues to be very high."
While growth remains "fragile and uneven", Germany will continue to power the region's recovery, the commission said.
"This recovery is uneven, an many member states are going through a difficult period of adjustment," EU commissioner for economic and monetary affairs Olli Rehn said in a statement.
Despite the modest growth forecast, Mr Rehn said the Irish economy has the ability to rebound "rapidly" from a recession.
"While there are serious challenges concerning public finances and especially the banking sector, which will be downsized, Ireland is a flexible and open economy which has the capacity of rebounding relatively rapidly from this recession," Mr Rehn said at a press conference in Brussels today.
"It's encouraging for Ireland and Europe that Ireland has this capacity. The Irish are smart, resilient and stubborn people and they will certainly overcome" this challenge.
Recent data indicates the slowdown in the pace of the recovery may be modest.
In Germany, Europe's largest economy, GDP will increase 2.2 per cent in 2011, today's report showed. In France, the economy may expand 1.6 per cent this year and next, while Italian GDP may rise 1.1 per cent in both years.
Greece and Portugal will be the only two euro zone economies showing a contraction next year, the commission said.
The commission said that "lingering concerns about fiscal sustainability" are "among the most important challenges".
Ireland's €85 billion aid package is aimed at quelling market turmoil that's threatening to spread to countries including Portugal and Spain. The EU also yesterday told Greece, which received a bailout earlier this year, it could have an extra four-and-a-half years to repay its loans.
"A replay of the negative feedback loop between rising sovereign risk premia, banks' ability to lend and economic growth prospects cannot be excluded," the commission said, adding it did not think such a scenario is likely.
The euro was little changed after the report, trading at $1.3176 at 12.09pm in Frankfurt, down from $1.3242 yesterday. "Investors remain concerned," said Juergen Michels, chief euro-region economist at Citigroup in London. "Without Germany, the growth picture would be rather bleak."
European Central Bank council member Christian Noyer said in Tokyo today that the economic recovery remains "well on track" and the region isn't facing a confidence crisis.
Additional reporting: Bloomberg