The Northern Ireland economy will experience a lower rate of growth this year than had previously been predicted, according to a new report.
The Ulster Bank Quarterly Economic Review said domestically-focused companies will be "hampered" by the public spending cuts.
The report said NI companies trading in international markets would fare better.
They are expected to benefit from an up-swing in global trade.
The bank's chief economist, Richard Ramsey said that growth forecasts for the global economy are currently being raised, whilst there is increasing evidence that NI will experience a lower rate of expansion this year than had previously been predicted.
"Over the last 12 months, economists have been raising their forecasts for global economic growth, with the US and Asia continuing to experience upward revisions," he said.
"Conversely, the intensification of the European debt crisis has had consequences for growth prospects in the Eurozone and the UK, and Northern Ireland will be significantly impacted by austerity measures introduced to control the UK's public finances.
"In this respect, we expect Northern Ireland public spending cuts totalling up to £1.5 billion over the next four years," he added.
The bank's data points to a much weaker recovery in the early part of this year for the Northern Ireland economy than had been anticipated.
Mr Ramsey predicts NI will likely experience growth of less than 1% in 2010.
"The biggest challenge facing the Northern Ireland economy going forward is undoubtedly the deep public expenditure cuts, which will bear down on growth prospects.
"The Northern Ireland economy will therefore struggle to get out of first gear in its recovery, and we expect economic growth of just 1.5% in 2011, compared to 2.7% for the UK and 3.5% for the Republic of Ireland.
Mr Ramsey said the food and drink sector as well as the pharmaceuticals sector, which tend to be more recession-proof, had performed much better than others over the past few years.
"Indeed if it wasn't for the strong performance of the food sector, supported by the euro:sterling exchange rate, local manufacturing output would have experienced a near collapse."
Mr Ramsey said companies who are reliant on the domestic and Irish markets are likely to struggle, while those who export, especially to the USA and Asia, will prosper.
Mr Ramsey said unemployment levels are likely to rise, pushing towards 8% by the turn of the year, which would be at levels last seen in early 1997.