Ireland is on course to be the fastest-growing economy in the euro area for the second consecutive year in 2015, according to Goodbody Stockbrokers.

The brokerage is forecasting growth of 4 per cent in GDP terms this year, following an expected expansion of 5 per cent last year.

In its latest economic health check report, however, it warned that spending pressures in the economy were mounting due to public sector pay talks and an upcoming general election.

“It is important that sensible fiscal policy is not abandoned, undoing the hard-won gains of recent years,” it said.

Goodbody said the recovery was now being led by domestic demand, which it projected to grow by 4.1 per cent in 2015.

It also noted that investment demand would continue strongly this year with construction taking over as the main driver.

“The recovery in the construction sector is expected to improve further as demand for housing and property price increases makes it a more attractive environment for development.”

While acknowledging that consumer recovery has been lacklustre thus far, the brokerage predicted this would pick up this year on the back of an improving labour market, modest wage increases and a falling tax burden.

Strong growth in taxes contributed to another year of deficit reduction in 2014, it said, predicting the deficit will fall below 3 per cent in 2015. But there are clear spending pressures becoming evident due to public sector pay talks and an upcoming general election, Goodbody warned.