THE OECD BELIEVES the Irish economy will stagnate this year, with private domestic demand expected to contract as a result of austerity measures.

The Organisation for Economic Cooperation and Development now expects gross domestic product (GDP) to come in at zero per cent in 2011 – a reduction from growth of 1.5 per cent six months ago.

Read a summary of the OECD’s projections.

The Paris-based think tank also says Ireland should not raise its rate of corporate tax, RTÉ reports. ”We don’t think it should be increased,” Senior economist with the OECD Patrick Lenain said, pointing out; “Capital is mobile and can move to another country”.

The OECD also believes house prices will stop falling in 2012.

The think-tank said the government should cut the dole for the long-term unemployed to encourage them to go back to work, reports the Irish Independent. Ireland’s failure to reduce unemployment benefits when a person does not find a job serves as a disincentive to find work, it said.

But there’s good news for the rest of the world, whose recovery is becoming self-sustaining, the think thank says. The Irish Times reports that the OECD  is no longer worried about a ‘double-dip’ recession and – despite sharply cutting growth outlooks for Ireland, Greece, Portugal and Italy – projections for the eurozone as a whole look more positive, with GDP expected to grow by 2 per cent in the zone in 2011.

More information about the OECD’s economic outlook >

Watch Pier Carlo Padoan, Chief economist with the OECD, discuss the economic outlook: