However, the European Commission warned that there could be risks from “external factors”, code for the effects of the UK voting to leave the EU in a referendum on June 23.
“Risks to this forecast are tilted to the downside, mainly due to external factors, to which Ireland is particularly exposed as an open economy, such as a deceleration in demand from trading partners,” the European Commission said in its spring economic forecast, yesterday.
The UK is Ireland’s largest trading partner, and under the Commission’s scenario, is assumed to remain in the EU after the June vote.
Despite the risks, the figures put Ireland “ahead of the game”, according to EU economy chief Pierre Moscovici, as average growth across the bloc is set to come in at 1.8% in 2016 and 1.9% in 2017.
The EU’s headline figure is dragged down by Greece, which remains in recession, and Finland, where growth is barely above zero.
Larger economies such as Italy, France, Germany, the Netherlands, and the UK are set to post growth well below 2% this year.
Ireland, which enjoyed record high growth of 7.8% last year, is set to remain at the top of the EU’s league table in 2016, though the Commission predicts growth will slow to 3.7% by 2017, knocking Ireland down to joint second place, behind Luxembourg.
Ireland’s rebound comes on the back of increases in consumer spending, the Commission said, with investment and exports having less of an effect, skewed as they are by “large transfers [imports] of patents by multinational companies to their Irish affiliates”.
The EU’s GDP estimate for this year — which is a 0.4 percentage point improvement on its February forecast — matches the government’s estimate, which was sent to Brussels last week as part of its regular economic reporting to the EU.
The EU, like the government, is more conservative than the Irish Central Bank and the IMF, which predict growth of 5% and 5.1%, respectively, this year.
The growth boost, along with lower spending and increased tax receipts, means Ireland’s budget deficit will fall from 2.3% of GDP in 2015 to to 1.1% of GDP this year and 0.6% next year, well under the EU’s upper limit of 3%.
This means Ireland will be officially removed from the EU’s excessive deficit procedure for indebted states this month, though the Government will still have to comply with spending rules.