New forecasts from consultancy firm EY predict that the Irish economy is set to grow by 5% this year and 4.3% next year.

In its latest economic eye report, EY also predicts that it will be late 2023 before the labour market returns to pre-Covid levels.

It also warns of the potential for sharp price inflation, due to Covid costs, Brexit and a potential jump in consumer spending.

Today's report projects a consumer boom for late 2021, as incomes were sustained by government supports and those still working had less opportunity to spend.

EY estimates that an additional €11 billion will have been accumulated in savings accounts over the course of the pandemic to the middle of 2021.

But it said that confidence will play a significant role in how much of this is spent when it is safe to do so, and the overall state of the labour market will be an important driver of the national mood.

"Not all savings will flow back immediately, and if the labour market looks uncertain or expectations are for future lockdowns, then there may be a need for the government to encourage spending through policy measures," it stated.

EY noted that "quite remarkably", the Republic of Ireland recorded the highest growth of all major economies in the world in 2020 at 3.4%.

Ireland's domestic contraction and labour market performance were similar to comparator nations, it added.

It said that consumer spending here fell by 9%, a similar figure to the UK contraction of 10.9% despite the vastly different headline growth trajectories.

The consultancy firm said the strong performance reflects the strength of Ireland's export base, which is dominated by pharma, ICT and agri-food – all strong performers during the pandemic.

But it said the strong GDP performance was in contrast to the significant labour market disruption seen in 2020 and continued into 2021.

Professor Neil Gibson, Chief Economist for EY Ireland, said that Ireland exits this economic crisis in much stronger shape than it did the last one.

"Though the domestic economy has been hit very hard, the Government has been able to borrow to support firms and individuals and the prospect is for a very strong domestic surge later in 2021. Hopefully, this will be sufficiently strong to allow government to ease back support and hand-on the spending baton to the consumer," the Professor said.