The Irish economy will grow by approximately 5 per cent both this year and next year and unemployment will fall below 10 per cent, according to the ESRI.

Economic growth is expected to be strong in 2014 and 2015, it said in its Quarterly Economic Commentary for Autumn 2014, published today.

The ESRI predicts growth in GNP of 4.9 per cent in 2014 and of 5.2 per cent in 2014. Declines in unemployment are also forecast, with the headline rate envisaged to fall to 9.6 per cent in 2015, it said.

“The recovery in Ireland is broad-based and is stronger than previously thought,” said David Duffy of the ESRI. “We have revised our forecasts upwards based on strong growth figures in the first half of 2014, better than expected performance in the net trade sector, a pick-up in investment levels and strong budgetary receipts. In our view, GNP continues to provide the best measure of the standard of living (and output) of Irish residents.”

The reports co-author Kieran McQuinn of the ESRI said that until recently it was expected that a significant fiscal correction would be required in the forthcoming budget in order for the deficit to be less than the target of 3 per cent of GDP.

“Our assessment now suggests that, under a fiscally neutral scenario, a deficit of 2.1 per cent of GDP will be attained in 2015. We believe that fiscal neutrality is the optimal budgetary course of action to follow,” he said.

“€500 million in additional revenue is expected to be raised in 2015, with the majority arising from water charges. Under fiscal neutrality, this would be available to the government for a consumption or investment package. We recommend adopting an investment strategy with targets an increase in the number of social housing units. This would help to consolidate growth while also tackling one of the most pressing economic and social policy concerns at this point, namely, the supply-side of the residential property market,” said McQuinn.