The European Commission has said Ireland's economy grew by 4.8% last year, and will grow by around 3.5% this year and next year as the Irish economy re-emerges as one of Europe's "top performers".
While Irish debt and deficit levels continued to fall there was, however, a warning over the potential impact of wage increases.
Announcing its Spring Economic Forecast today, the Commission said that exports and private sector investment were continuing to drive growth.
It also said that domestic consumption was a contributory factor in higher growth rates for the country.
However, the Commission expressed concern about the risks posed to the recovery by pressures to increase public sector pay, and a general risk that Ireland's competitiveness could be eroded if wage increases were not in line with in productivity.
"The main risks around the deficit projections are persisting spending pressures linked to demographics and possible increases in public sector pay," the forecast concluded.
The Commission also noted that high levels of private and household debt meant that domestic spending "remains uncertain."
"Bank net lending to households and non-financial companies continues to decline as demand remains subdued and Irish companies use retained earnings for investment. Nonetheless, the profitability of the domestic banks continues to improve, which should boost their capacity to extend credit," the report said.
The forecast predicted that unemployment would fall to 9.2% in 2016, down from 11.3% in 2014.
"Inflation will remain very subdued in 2015, given that energy prices are still low. In 2016, inflation is forecast to rise in line with expectations in the euro area," the report said.
The Spring forecast also noted that Irish property prices rebounded in 2014 by 16.3%, although the number of purchases remained 38% below their 2007 peak.
While the Central Bank's lending restrictions had helped dampen prices, housing supply "remained a concern, particularly in Dublin."
The report said that risks to the economy could include the prospect that further paying down of household debt could dampen domestic spending, while an increase in wages, "if not in line with productivity, could erode competitiveness."
The Commission said the budget deficit stood at 4.1% of GDP in 2014, down from 5.8% in 2013.
However, government spending increased in nominal terms for the first time since 2010 due to higher capital and infrastructure spending.
The deficit would fall to 2.8% in 2015, lower than in the Commission's 2015 winter forecast, but would rise again to 2.9% in 2016 due to infrastructure investment and health spending.
"The main risks around the deficit projections are persisting spending pressures linked to demographics and possible increases in public sector pay," the report said.
Ireland's debt level will fall to 103.8% of GDP in 2016, down from 123.2% in 2013. "This marked improvement largely reflects the liquidation of the Irish Banking Resolution Corporation," the report stated.
Euro zone economic growth to accelerate to 1.5% in 2015
Meanwhile, euro zone economic growth will be stronger than previously expected this year thanks to cheaper oil, a weaker euro, stable global growth and supportive fiscal and monetary policies, the European Commission said today.
In its quarterly economic forecasts of main economic indicators for the whole 28-nation European Union and the 19 countries sharing the euro, the EU executive arm also forecast a pick-up in inflation later this year and declining unemployment.
The Commission expects euro zone economic growth to accelerate to 1.5% in 2015 from 1.3% forecast three months ago. It kept unchanged its previous forecast of 1.9% growth for next year.
Meanwhile, Greece's economy suffered an alarming slump in the first three months of 2015, the European Commission said, in a dangerous development as Athens continues to battle its EU-IMF creditors.
The EU executive cut its overall 2015 growth forecast for Greece to 0.5%, a huge reduction from its earlier prediction of 2.5%.
"The European economy is enjoying its brightest spring in several years, with the upturn supported by both external factors and policy measures that are beginning to bear fruit," said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs.
As the economy accelerates, so does euro zone inflation - the Commission raised its forecast for consumer price growth this year to 0.1% from a price fall of 0.1% forecast three months ago. Next year consumer prices are likely to rise 1.5% rather than 1.3% expected earlier.
Stronger growth will also help bring down unemployment more quickly-- the Commission now expects an unemployment rate in the euro zone of 11% this year and 10.5% next year, down from 11.2% and 10.6% respectively projected earlier.
The euro zone's aggregated government deficit will also be smaller than previously expected at 2% rather than 2.2% this year and at 1.7% in 2016, rather than the previously forecast 1.9%.
Euro zone debt has peaked last year at 94.2% of GDP, the Commission said, and will now fall to 94% this year and 92.5% in 2016. Three months ago the EU executive arm expected debt would only peak this year at 94.4%.
