The Irish economy is set to grow by 3.1% this year, a percentage point more than the government is forecasting, a Reuters survey of 12 economists found.

The rise from June's poll forecast of 2.3% growth in gross domestic product this year follows a string of positive economic data, a fall in unemployment and a surge in house prices.

Due to the improved outlook and new EU calculation methods that judged the Irish economy to be about 6% larger than previously estimated, the economists cut their forecast for this year's budget deficit to 3.8% of GDP.

That compares to a previous estimate of 4.6% and would see Ireland zero in on the EU's goal of reducing its once-ballooning deficit to 3% of GDP by 2015 without the need for many more heavy budget cuts.

"A GDP increase of 3%-plus looks on the cards, which should significantly ease the burden on the level of fiscal austerity required in the October budget," Alan McQuaid, chief economist at Merrion Stockbrokers, said referring to October's announcement of the 2015 budget plan.

A relatively painless budget "should be the end of the bad news as far as consumers are concerned," Mr McQuaid said.

Three of the nine economists who replied to an additional question on the budget for 2015 said the government could avoid any new tax hikes or spending cuts altogether. The average forecast for the level of adjustment needed next year was just over €300 million.

That would be far below the government's original estimate of €2 billion, which will cap an eight-year austerity drive that has seen €30 billion, or close to 20% of annual output, taken out of the economy.

Finance Minister Michael Noonan has cautiously said the adjustment would be "somewhat less" than €2 billion if the momentum in economic growth and tax returns continues.

Sharp contrast to Europe

Ireland's recovery contrasts with the contractions or stagnations seen in France, Germany and Italy in the second quarter, with the economy moving off a low base with the aid of an international bailout programme.

The poll predicted economic growth of another 3.1% next year for Ireland, above the government's April forecast of 2.7%.

Unemployment has returned to the euro zone average of 11.5% from a high of 15% in 2012. 

Economists see it falling below 10% by the end of next year, boosting Taoiseach Enda Kenny's re-election hopes in 2016.

The mean forecast for house price growth this year rose to 10.5% from 6.3% after house prices in Dublin grew by 23% in the year to July and a recovery began to spread outside the capital with prices up 5%.

"The Irish economy is now in strong recovery mode as evidenced by rapidly falling unemployment, the very high level of business confidence indices, and - in a new development - strong consumer spending," said Eoin Fahy, chief economist at Kleinwort Benson.