The Central Bank's almost halved the prospects for growth in the economy this year.

And economists at the bank are also urging the government not to ease up on the austerity planned for October's budget.

The bank is now forecasting that growth will drop from 1.2% in its quarter 2 bulletin to 0.7% now.

It is predicting a significant pick up next year with growth of 2.1% forecast.

The Bank says the coalition should resist the temptation to ease up on austerity in October's budget by using the benefits of the promissory note deal.

It says the faster the austerity is concluded, the more secure the recovery will be, and the planned €5.1 billion correction in the next 2 budgets is needed.

Fixing the banks, and particularly mortgage arrears, remains a key challenge it says - and that realism on all sides and an openness to innovative approaches will be needed for success.

Despite what it says is a gradual pick-up in employment, unemployment will remain above 13% through next year.

Economist at the Central Bank John Flynn says there are good reasons for the government not to ease up on the austerity.