The European Commission has cut its forecast for Irish economic growth, but said the economy here will still see the highest GDP growth in the EU this year.

The Commission predicts that the Irish economy will grow by 5.6% this year and 4% in 2019, down from its earlier estimates of 5.7% and 4.4%.

This is still well above the GDP growth rate of 2.1% forecast for the euro area and the EU28 for this year. 

In its latest report, the Commission said that inflation in Ireland is expected to reach 1% this year and 1.3% in 2019. This is below the 1.7% rate forecast for the EU for both 2018 and 2019. 

The Commission also said today that "encouragingly" both the labour market and construction investment have maintained their strong momentum in the first half of 2018. 

It noted that employment recovered from its pre-crisis levels in the first quarter of 2018 and unemployment continues to fall. 

"Household real disposable income continues to grow, driven by robust growth in full-time employment, rising wages and low inflation, thereby also supporting consumer confidence," it added. 

But it also cautioned that headline trade and investment figures have recently been very volatile and heavily influenced by the activities of multinational companies. 

"While the outlook for the euro area slightly worsened, the overall external economic environment is expected to remain broadly supportive of Irish exports over the forecast horizon," it added.

The Commission also said that Brexit is a concern for the economy, mainly due to the uncertainty caused by the ongoing negotiations between the UK and the EU. 

"As a highly open economy, Ireland is particularly exposed to changes in the international taxation and trade environment. Activities of multinational companies could swing headline GDP growth in either direction," it added.

Meanwhile, the European Commission today cut its forecasts for the euro zone's economic growth this year, saying the main causes for the revision were trade tensions with the US and rising oil prices which are pushing the bloc's inflation higher.