The Irish economy will suffer serious damage if the US falls into recession, according to a new assessment by the International Monetary Fund (IMF).
A shock in the US economy would have a bigger impact on Irish growth than a similar upset in the euro zone or the UK, the IMF study found.
This means a US downturn would cause serious economic problems for the Republic.
The findings, contained with a paper entitled Spillovers to Ireland, emerged as the Federal Reserve cut US interest rates for the second time in an eight-day period in a bid to stave off recession.
The cut of half a percentage point brings rates to 3 per cent and, when coupled with last week's reduction, equates to the most abrupt easing by the Fed since the early 1980s.
Ben Bernanke, the Fed's chairman, is seeking to head off the possibility that difficulties in the financial sector could spread to other parts of the economy, creating further problems for banks.
Earlier yesterday, new figures showed that the US economy grew at an unexpectedly weak pace of 0.6 per cent in the fourth quarter, its slowest since 2002, giving force to recession fears.
In its assessment of the Irish economy, finalised earlier this month, the IMF said: "If the downside risks to US growth are realised, this is likely to have a significant adverse impact on Irish growth since . . . shocks to the US economy tend to have stronger effects on the Irish economy than those originating in other partner economies."
Econometric modelling suggests that a shock causing a one percentage point drop in annual growth in the US economy could lead to a 1.75 percentage point decline in Irish growth over the same period, according to the IMF paper.
A fall-off in growth of the same magnitude for a similar reason in the euro zone or in the UK would cause a drop in growth of 1.5 and 0.25 percentage points respectively, the IMF said.
"Thus, Irish economic activity appears to be very sensitive to developments in the US and the euro area, but much less so for the UK."
This sensitivity stems from the Republic's dependence on the US as an export market and as a source of foreign direct investment.
The Federal Open Market Committee(FOMC), which makes US interest rate decisions, last night issued a statement leaving the door open for further rate cuts, observing that "downside risks to growth remain".
Pat McArdle, chief economist at Ulster Bank, said the Fed was implementing a "new model" in monetary policy by easing interest rates by so much so quickly. "This is a more active Fed than we have been used to." The dollar tumbled after the rate decision as traders anticipated another reduction at the Fed's March meeting. Mr McArdle said he did not expect rates to be reduced to the 2 per cent level many are expecting.