Northern Ireland's economy will outpace growth in the Republic this year, but the province could be facing up to £1bn in public sector spending cuts that will slow the recovery, a new report has warned.
The latest Ernst & Young Economic Eye forecasts that Ireland will endure a further 1% contraction in gross domestic product (GDP) this year before returning to growth of 2.8% in 2011.
The outlook is slightly brighter for Northern Ireland, with economic growth of 0.8% forecast for 2010 and 2.2% GDP growth expected next year.
However, Ernst and Young's special economic advisor for the report, Neil Gibson, warned there is still significant uncertainty over the outlook.
"Unfortunately the risks to the forecast have increased in recent months with rising concerns over the ability to control debt in a number of eurozone countries. The recovery, though under way across the Island, is tentative and largely jobless, with public sector cuts adding to the downbeat mood," he said.
Ernst & Young forecast the Republic's job market will not recover to 2007 peak employment levels until 2022, with the Northern Ireland recovery expected to restore peak employment by 2017 - although the effect of the recession on the careers of people aged under 25 is predicted to be "disproportionately severe".
With one in three people in Northern Ireland employed in the public sector, spending cuts here will "significantly impact" the economic recovery, said Mr Gibson.
"Northern Ireland will face a £128m reduction in public sector funding in 2010 now that the UK coalition government has agreed plans for £6bn cuts - in the medium term we are predicting cuts of between £750m and £1bn for Northern Ireland," the economist said. "We are in an era of public spending cuts but we must not let this be seen as an insurmountable problem. The reprioritisation of spend and reduction in any unnecessary costs will, just as it has in the private sector, lead to a more efficient and dynamic sector.
"There will be tough choices but the cuts must be seen against the backdrop of significant spending rises in recent years and there is a range of choices in how they may be implemented, most of which do not lead to a deterioration in frontline services."