DUBLIN, July 10, 2008 (AFP) - The Irish economy will continue to grow this year despite fears of a recession, the country's Central Bank said in an annual report that was published on Thursday.

The upbeat prediction came despite recent news that Ireland's gross domestic product (GDP) shrank by 1.5 percent in the first quarter of 2008 on a 12-month basis, according to official data given last month.

That sparked concern that the Irish economy could soon face a recession, which is defined as two or more quarters of economic contraction in a row.

'Overall, it seems likely that both GNP and GDP growth will remain positive this year, albeit significantly less than 1.0 percent,' Irish Central Bank governor John Hurley said at the launch of the annual report.

'Although some improvement is in prospect, growth is likely to remain below potential in 2009 at about 2.0 percent.'

Gross national product (GNP) is the Irish government's preferred measure of economic growth because it strips out substantial profits earned by multi-national companies in Ireland which are then taken out of the country.

Hurley said on Thursday that Ireland had been hit hard by a substantial adjustment in the domestic housing market, international financial market turbulence and, more recently, the effects of increased oil and food prices.

'This has led to a greater-than-anticipated slowdown in growth and higher-than-expected inflation,' he added.

'Notwithstanding the challenging short-term outlook, we continue to believe that the medium-term outlook is favourable and that growth should gradually recover and inflation moderate.

'However, such an outcome is not guaranteed and will require concerted action.'