THE GOVERNMENT yesterday lowered its expectations for economic activity and employment in 2012 in its first economic forecast since December’s budget.

Despite the gloomier outlook, the administration expects to meet most of its short-term targets. These include targets it is obliged to meet under the terms of its EU-International Monetary Fund bailout.

Earlier this week Minister for Finance Michael Noonan ruled out the need for additional budgetary cuts.

The figures are contained in the Stability Pact Update, a wide-ranging report all EU member states are obliged to compile biannually.

“Based on these economic growth forecasts and having taken on board the first-quarter exchequer data, my department still expects that the general Government deficit target of 8.6 per cent of [gross domestic product] for 2012 is on track to be achieved,” Mr Noonan said yesterday.

The Government says it believes its total revenues this year will reach almost €57 billion, up by €1 billion on last year.

General Government spending this year is projected to stand at just over €70 billion, down half a billion euro on last year once additional bank bailout costs are excluded.

The plan to close the gap between revenue and spending over the next four years depends almost entirely on stronger economic activity generating more revenues.

By 2015, revenues are forecast to have grown solidly to reach €64.4 billion, while spending is projected to be little changed on its current level at €69.4 billion.

The Government expects GDP in 2012 to expand for the second successive year and at an identical rate to last year. But the projected 0.7 per cent increase in GDP is almost half the rate it expected five months ago and the forecast remains somewhat higher than most other forecasters. Both the European Commission and the IMF expect an expansion of 0.5 per cent this year.

The Government’s revision to gross national product, a narrower measure of economic activity, went from growth of 0.7 per cent to a contraction of 0.2 per cent. Much of this will be accounted for by households spending less. Private spending is set to fall by 1.5 per cent in 2012, the fifth consecutive year of decline.

More positively, the Government expects investments in productive assets, such as factory machinery, to rise this year, in part thanks to the “spate” of recent announcements by foreign companies beginning new projects.

In the 2013-15 period, both GDP and GNP growth rates are expected to accelerate, averaging 2.7 per cent and 2 per cent respectively.

While at budget time the Government expected the employment figures to be broadly stable this year as compared to last, it now expects a decline of 0.4 per cent. Were it not for employment creation measures implemented, the report said the expected decline would have been bigger.

Unemployment will fall only gradually, the report says. In 2015, just under 12 per cent of the workforce will be jobless. The current rate is just over 14 per cent. This does not include future additional job creation measures the Government says will reduce unemployment more rapidly.

All the forecasts are subject to very considerable risk, most of which is to the “downside”.

“The degree of uncertainty and margins of error surrounding projections for Ireland and the global economy are particularly high at this time,” the report says.

Domestic risks highlighted in the document are households maintaining high savings to bolster their broader financial positions and an ill-functioning banking system.

Internationally, the report points to a reigniting of the euro financial/ debt crisis and a sudden increase in oil prices as the greatest dangers.