The Central Bank has raised its growth forecasts for 2015 and 2016 due to stronger domestic spending and an ever-growing demand for Irish exports.
It said the economy is now growing so strongly there is no need for a fiscal stimulus programme to boost growth and any excess Government revenue should be used to reduce debt levels.
In its latest Quarterly Bulletin, the Central Bank said it expected Gross Domestic Product growth of 4.1% this year - an upward revision of 0.3 percentage points on its last forecast.
It believes the economy will grow by a further 4.2% next year, which is 0.5 percentage points higher than the April forecast predicted.
Gross National Product, meanwhile, is forecast to grow by 4.2% this year and 3.8% in 2016.
The Central Bank said the slow recovery of the euro zone economy has helped boost the sale of Irish goods abroad, as has the country’s trade links with Britain and the United States.
However it is domestic demand that has contributed most to the improving picture, with consumer spending now playing a more prominent role in domestic growth.
The Central Bank also said that consumption was showing signs of recovery, most likely due to an improvement in employment figures, which has boosted incomes.
It forecasts the unemployment rate to fall to 9.7% by the end of this year and to 8.5% in 2016.
Consumer prices, meanwhile, are expected to rise slightly in 2015 before growing by 1.6% next year.
Consumer spending aside, the Central Bank also expects investment to continue to grow, particularly in the country’s construction sector.
However it also warned that public and private indebtedness remains high - despite falling somewhat - and policy needed to focus on reducing remaining vulnerabilities in the economy, while also making the system more resilient to potential shocks.
