The Government has revised down slightly its projections for growth in the domestic economy this year, but still expects a moderate level of expansion in 2024 and beyond.
Publishing the Stability Programme Update (SPU), it says it now expects the key measure of domestic economic growth, Modified Domestic Demand, to expand by 1.9% this year, down from the 2.2% it estimated at the time of the Budget.
But it also expects the rate of domestic growth to pick up pace to 2.3% in 2025.
The speed at which consumer prices are rising is also now expected to fall more sharply than thought in October.
Inflation is now predicted to average out at 2.1% this year, rather than the 2.9% previously forecast, as global energy prices continue to drop.
This is expected to lead to a pick-up in consumer spending as increases in wages translate to stronger purchasing power.
A strong labour market and ongoing full employment means the unemployment rate is expected to average just over 4.5% this year and in 2025, a little higher than previous estimates, the SPU says.
"Available evidence suggests the economy is in reasonable shape, at least in aggregate terms," Minister for Finance Michael McGrath said.
"Looking ahead, some of the headwinds that have dominated over the past year are set to ease as the year progresses and this should support a pick-up in economic activity," Mr McGrath said.
The all-round solid economic performance means the Government now expects to record a surplus this year of €8.6 billion, up slightly on the Budget day forecast.
This is based on tax revenue growing by 4.6% to €92.1 billion.
But the Department of Finance is cautioning that once corporation tax receipts of around €11 billion that are considered to be one-off in nature are excluded, that surplus would turn into a deficit.
"These receipts cannot be relied upon: we saw a marked slowdown in corporation tax over the course of last year, highlighting the volatility of this revenue stream," Minister McGrath said.
"We can say with reasonable confidence at this point that the era of corporation tax over-performance is coming to an end," he added.
Following several years of it being breached, the SPU also sets out the intention of a return to the Government's spending rule, which limits the growth in core spending each year to 5%.
Asked if this meant that the Government is committing to adhere to its 5% spending increase rule in October's Budget, the Minister for Finance said that the approach to Budget 2025 would be finalised in the Summer Economic Statement.
"That will take into account the latest exchequer position, the forecast for the economy, where we are in terms of inflation at that time as well, and we will agree on an approach to Budget 2025 that will again be sensible and recognise the risks we face as an economy," Michael McGrath said.
But Mr McGrath added that as inflation falls we are moving into a more normal budgetary environment that we haven’t had experience of in recent years.
While Minister for Public Expenditure Paschal Donohoe said that regardless of whether the increase in spending was 4, 5, or 6% in the Budget, that increase in real terms was very small in comparison to the billions the Government is putting away in its two new future focused funds.
The SPU also still contains a non-core spending allocation of around €4.5 billion for each year from 2025 to 2027.
That is similar to this year's figure and is included primarily to meet the challenges arising from Covid and the war in Ukraine, with the bulk of the spend driven by the humanitarian response to support people fleeing the war.
Mr McGrath said that was based on technical assumption of no policy changes, but there would be a refined assessment of the situation closer to the Budget.
This year spending of €97.1bn has been budgeted for.
Asked about the warning given to Cabinet ministers by Paschal Donohoe about spending running ahead of target over the first three months of the year, Mr McGrath said there had been a significant increase in spending in the first quarter compared to same period last year.
"There are some exceptional reasons for that in terms of one-off payments, and other exceptional items that have arisen," he said.
"But there is a need for continued budget discipline and both Minister Donohoe and I emphasised the importance at cabinet of respecting the budget parameters."
The SPU also says that by 2027 annual spending is expected to have reached over €110 billion.
"This increased investment will help us to improve living standards, supporting economic growth and help us tackle the challenges of climate change and the green transition," Paschal Donohoe said.
"The continued capital investment through the recently reviewed National Development Plan will make a difference to our lives, particularly in areas like housing," Mr Donohoe added.
The further growth in the economy means the debt to GNI* ratio should fall to 72.1% this year and 69.7% in 2024, the SPU says.
However, the overall level of debt will remain high at more than €223 billion.
EU member states legally must publish an SPU by the end of April each year and submit it to the European Council and Commission as part of budgetary planning.
The publication marks the formal start of the annual budgetary process, ahead of the publication of the Budget in October.
However, incoming reforms to the process mean this will be the last year the SPU will be delivered in this way.
Reacting to the publication of the SPU, Sinn Féin said it lacked any ambition to tackle the real challenges faced by the State, particularly around housing.
"We've no significant increase in investment that we need to build social, affordable, cost rental houses, despite the fact that the programme actually states that the housing crisis is a risk to the Irish economy," said Sinn Féin finance spokesman, Pearse Doherty.
While Labour welcomed the SPU's publication saying the update paints a picture of a healthy economy which is on course to grow.
"What’s lacking amid the positive numbers is a real vision for society," said finance spokesman, Ged Nash.
"For too many languishing on hospital trolleys and for those who cannot afford to buy a home, this rich country feels very poor. On housing, on health and on care, this government is failing. The commentary from Minister McGrath rightly warns us again of the dangers of relying on windfall business taxes to fund spending growth."
"At the same time, Fianna Fail’s first Finance Minister since they torched the country has pledged to go on a tax cutting crusade that risks narrowing the very tax base he is asking us to worry about."
