The Central Bank has revised its forecasts with the homegrown economy to do marginally better than predicted and the wider economic revival slower than estimated.
The second bulletin of the year has put gross domestic product (GDP) growth, which measures everything including the multinational sector, for the year at 1.2%, down 0.1%.
The value of Irish-owned business, gross national product (GNP), will grow by 0.6%, up 0.1%, according to the quarterly review.
The Central Bank said that, with employment growing for the first time since 2008, the gradual recovery of the Irish economy is continuing. It also said that there were signs that "the fall in domestic demand may, finally, be nearing an end" with more jobs being created combined with a modest growth in consumption and investment spending.
The bank added: "Uncertainty attaches to these forecasts, however, and they remain very sensitive to developments in the international and European economy."
It also criticised what it called "slow progress by banks" in tackling debt issues and mortgage arrears. It warned that it has prolonged uncertainty about the asset quality of banks and the prospects of profitability.
The Central Bank said it is proposing changes to the code of conduct on mortgage arrears to possibly improve homeowners' protection but also allow effective and timely resolution of arrears cases.
"Resolving the problem of non-performing loans at a reasonable cost while, at the same time, addressing the distress of households will help to strengthen the prospects for recovery," it said.
GNP growth for next year has been revised up from 1.4% to 1.6%, while GDP forecasts remain the same at 2.5%, the bulletin said.
It also forecasts that unemployment will have peaked last year at 14.7% before falling 0.2% this year and down to 13.9% in 2014. The latest quarterly national household survey put the unemployment rate at 14.2%.