Business and employers group Ibec has forecasted very strong economic growth this year, and more than half of member firms surveyed said they expect to award pay increases.

However, it said domestically focused firms are less able to afford pay increases than exporters.

The group said public service salaries must be linked to the Government's limited ability to increase pay.

Speaking on RTÉ's Morning Ireland, Ibec head of policy and chief economist Fergal O'Brien said: "We see two thirds of our domestic services companies tell us they're not in a position to give pay increases.

"The reason is while we're recovering, we're on the upswing, we still haven't broken through the surface in terms of where we were in 2007.

"So we still haven't recovered to pre-crisis peak. Many of those businesses are still stuck with the legacy, costs and charges that they had in the boom time."

Minister for Jobs, Enterprise and Innovation Richard Bruton said a full restoration of public service pay cuts was possible, but it would take time and had to be done in the context of getting back to full employment.

Speaking on the same programme, Mr Bruton said it was now time to look at pay, but this had to be balanced with other competing needs, such as the need to bring down taxes and improve services.

Ibec said economic growth this year will be even stronger than 2014, and has revised up its forecast to almost 5.5%.

By contrast, the latest Central Bank forecast is for growth of 3.8%.

While all forecasters expect unemployment to drop below 10% this year, Ibec thinks it will go below 9%.

In such circumstances, it expects stronger growth in weekly wages than last year's 0.6% rise.

In a survey of 500 member firms, it said 57% intend paying staff more this year, with a median rise of 2%.

But a national average figure of just over 1% points to several parts of the economy where pay rises will be difficult.

Pay rises will be more difficult in the domestic-focused service sector, where only a third of firms said they can afford a pay rise.

Ibec said public service pay cuts and productivity increases played a central role in restoring the public finances, and it is appropriate that the situation be reviewed.

It said wage rises must be linked to the State's ability to pay, productivity gains must be kept, and public sector pensions must be reformed.

Mr O'Brien said the European Commission was unlikely to allow excessive increases in pay.

He said Ireland was becoming a less attractive country for those with mobile skills and said the Government was fixated on the concept that tax reductions should only be for those earning less than €70,000.

Mr O'Brien described the tax rate of 52% as penal and said Ibec was not opposed to an increase in the minimum wage over time.

Ibec has again called for a reduction in marginal tax rates in the next Budget, and said the current system is causing recruitment problems in some industries.