The Central Bank has nearly doubled its prediction for economic growth this year, largely due to a higher than expected level of exports.
In its latest quarterly bulletin for this year, it said that gross domestic product (GDP) will expand by 4.5% in 2014 compared to its prediction three months ago of 2.5% growth.
The bank said economic recovery has gained momentum and is broadening, though it warned that the economy's underlying strength is not as buoyant as some data suggests.
Excluding the input of multinational firms, gross national product will expand by 4.9% in 2014, it predicted.
The Central Bank's revisions to growth expectations for next year are much smaller with GDP predicted to expand by 3.4% - up 0.1% - and GNP in 2015 to grow by 3.1%, up 0.4%.
On the domestic side, consumer and investment spending are strengthening but the bank cautions that high unemployment and debt levels remain headwinds to a strong recovery in consumer spending.
On the Budget, the bank is pushing for an adjustment to bring the deficit-to-GDP ratio below the 3% target.
It said it would be advisable to take advantage of temporary revenue surges to reduce debt more quickly to ease the overhang of indebtedness.
"Doing more than the minimum necessary and bringing the budget deficit comfortably below 3% of GDP in 2015 would provide an important buffer to guard against adverse shocks," the bank stated.
It noted that the banks' liquidity and funding positions are continuing to improve and are returning to a more sustainable profile, while their profitability is also continuing to show signs of recovering.
However, it cautioned that more progress is needed in dealing with mortgage arrears, which continues to "cloud" the sector. It said it will continue to work to ensure that banks and borrowers in arrears move to achieve durable solutions.
It also said it does not believe that bank credit has been the main driver of the recent surge in Dublin house prices, adding that lenders will need "to exercise prudence" in mortgage lending standards.
The Government has recently increased its forecast for GDP growth this year to 4.7%, far more than much of Europe, after recent data showed an expansion of 7.7% year-on-year in the second quarter following two years of scant growth.
