Stockbrokers Goodbody has upgraded its domestic demand figures from 1.5pc and 2.2pc to 2.5pc in 2014 and 2.7pc in 2015.
Domestic demand is accelerating on the back of a rebound in investment but the Government would be wrong to abandon austerity measures, the new report says.
The upgrade comes on the day the Government gives its Stability Programme Update where it is expected to stay it is sticking to the €2bn cuts in Budget 2015.
Goodbody said the recent National Accounts data, which showed a 2.3 per cent quarterly decline in the last quarter of 2013 was “nothing more than statistical noise with the more encouraging signs on the Irish economy very much in train.”
The stockbroker went on to caution, that while the domestic economy is very much in recovery mode, the Government should be wary of abandoning austerity too quickly and stay on the current track.
“Stronger domestic momentum means that budget deficit targets look readily achievable but it would be wrong to suggest that the job is done. The debt level will fall in 2014 for the first time in a decade, but at 122 per cent, Irish sovereign debt remains high in both an historical and international context. At this level, Ireland does not have much room for manoeuvre in the event of another international shock, such as a long period of low inflation or even deflation in the euro area,” said Goodbody chief economist Dermot O’Leary.
“With a general election only two years away, Government may wish to ease back on austerity. While we believe there is scope to reduce the planned €2billion in austerity measures in Budget 2015 by up to €500million, it would be unwise to abandon the programme completely, especially when Budget 2015 could prove to be the last of a long and painful period,” he added.