THE CENTRAL Bank has described the June 29th European Union summit deal as “favourable” for Ireland as it addressed banking-related debt, but said it does not change the need for continued budgetary consolidation.

On overspending by the Government in the year to date, Maurice McGuire, director of financial operations, said the bank assumed action would be taken to reverse the overruns.

Speaking at the launch of the bank’s quarterly bulletin, the bank’s economists were generally downbeat, saying that the wider environment had not improved. They also highlighted weaknesses in the euro area economy.

Mr McGuire also said that there was a case for increasing reform momentum so that the economy’s competitiveness could be improved more rapidly. The bank noted that competitiveness gains since the recession began may be overstated owing to structural changes in the economy.

The bank made only marginal changes to its forecasts for this year and next, with one exception.

The current account surplus with the rest of the world is now expected to be more than three times larger this year than forecast three months ago. The surplus next year is expected to be twice as large as previously forecast.

In 2012, the bank expects the current account surplus to reach €4.2 billion, or 3.3 per cent of gross national product, rising to €6.3 billion (4.8 per cent of gross national product) in 2013.

During the bubble era the State ran large current account deficits as the financial system borrowed heavily from abroad to fund property lending.

Gross domestic product – the widest measure of economic activity – is forecast to grow by 0.7 per cent in 2012, before accelerating to 1.9 per cent in 2013. This represents a slight upward revision to the 2012 forecast of three months ago and a slight downward revision to 2013 projection.

GNP is expected to contract by 0.3 per cent this year and grow by 1 per cent in 2013.

The bank also expects unemployment to be higher than anticipated, at 14.7 per cent of the workforce this year (compared to a prediction of 14.4 per cent three months ago). The higher rate is because the bank believes the workforce will shrink by less than it thought as fewer unemployed people emigrate.

Separate monthly figures on total bank deposits and lending, also published yesterday by the Central Bank, showed a slight rise in cash on deposition in Ireland-based banks at the end of June compared to the previous month .

Deposits in all banks, including those at Dublin’s Irish Financial Services Centre, stood at €546 billion at the end of June. This was €400 million higher than in May.

The increase occurred despite a renewed intensification of the euro area crisis in the second quarter of the year. Along with the performance of the Irish Government bond market, this suggests that Ireland may be decoupling from the other countries considered peripheral in the euro zone. Notable deposit outflows took place in Spain and Greece in the second quarter.

Bank lending to households rose marginally in June, but lending to businesses continued to fall.