The Stability Programme Update published this afternoon, which sets out new deficit and growth targets, predicts the economy will grow by 4.5% this year.
It's also forecasting that the domestic economy will rebound strongly by 7.4% next year.
This is all dependent on a successful vaccination programme and the gradual lifting of pandemic restrictions.
Unemployment is forecast to remain high, however, averaging at just over 16% this year before falling to 8.2% next year.
The Minister for Finance, Paschal Donohoe, confirmed he's taking the view that €2 billion will be knocked off our corporate tax receipts by 2025 if a deal is struck on reforms.
He also said he expects the economy to return broadly to balance by 2024/25.
Public Expenditure Minister, Michael McGrath said he did not see the need for austerity budgets.
The SPU also forecasts that unemployment will fall to 5.5% by 2025.
This is still higher than the pre-pandemic low point of 4.6% in late 2019.
The Department says this is evidence of the so-called 'scarring' or long term impact of the pandemic on the economy.
The SPU pencils in a general government deficit of 4.7% of GDP or €18.1 billion this year.
This is predicted to fall to 2.8% or €11.6 billion next year.
However, the Minister for Public Expenditure, Michael McGrath, said the government is currently discussing the level of support payments, both for incomes and businesses, that may be needed beyond June when the PUP and the employment wage subsidy schemes are formally due to expire.
He said he expects all of the resources of the €5.4 billion Contingency and Recovery Fund announced at Budget time will have been allocated by then.
So, additional spending on extending support payments will add to level of expenditure this year.
The Minister for Finance, Paschal Donohoe, said no finance minister can exclude revenue raising measures but if 'sensible decisions' are made on taxes and spending and the emergency measures to deal with Covid are pulled back gradually, he believes the economy will be back 'broadly in fiscal balance by 2024/25.'
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The Stability Programme Update (SPU) is required under European budgetary rules.
The Department of Finance only publishes two sets of economic forecasts every year, the one today and one at Budget time in October.
Despite the damage wrought by Covid, the economy has been resilient and tax income has held up better than expected. There is also a trade deal now in place with the UK.
The forecast figure for last year's deficit at Budget time has turned out to have improved from just over €21 billion to just over €18 billion.
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Dermot O'Leary, chief economist with Goodbody, said the lower than expected deficit last year should be viewed in the context of not only the budget projection, but the forecasts around this time last year when it was expected that the deficit for 2020 could be as high as €30 billion.
"It's a pretty good result and we know why. We had a €16 billion increase in spending on things like the Pandemic Unemployment Payment, but revenue performance was particularly impressive. It was down only €4.5 billion because the economy performed better than expectations," he said.
"We will have another big deficit this year, but in the context of the overall situation, it's doing the right thing now because the public sector is effectively replacing the private sector, which has been in hibernation."
He likened the temporary spending during the pandemic to a 'down-payment' to give as many businesses as possible a shot at a viable future.
"It's somewhat different to permanent day-to-day increase in spending. In the budget last year, it was very much strictly separated. There were the core spending elements and then the Covid spending elements."
Mr O'Leary said further spending would likely be required post-pandemic in order to get businesses back up and running and to encourage them to rehire their workers.
