THE EUROPEAN Commission has forecast that the expansion of the Irish economy will pick up next year as domestic demand stabilises and growth increases in Ireland’s trading partners.

As the EU executive maintained its forecast for “modest” growth this year of 0.5 per cent of gross domestic product (GDP), it said the economy was likely to grow by 1.9 per cent in 2013.

“The effects of public and private sector deleveraging will continue to weigh on growth in 2012. However, this will be offset again by external demand,” the commission’s spring forecast said.

The report said Ireland’s fiscal adjustment was on track.

The general government deficit is projected to drop to 8.3 per cent of GDP this year, below the Government’s 8.6 per cent forecast in the budget.

The commission said the Government was taking the benefit from lower interest expenditure, higher revenues from both fees for bank guarantees and bank dividends, as well as the stronger-than-expected employment figures.

Economics commissioner Olli Rehn declined to comment when asked whether he had any message for prospective No voters in the fiscal treaty referendum.

Neither had he anything to say when asked whether Europe would leave Ireland without aid in the event that a second bailout was required and access to the European Stability Mechanism was barred due to any No vote.

“I want to deprive you from the joy and benefit of having big headlines on this issue. I leave it to the Irish people to decide on the fiscal compact treaty,” he said.

“It is self-evident that the European Commission is supportive of the fiscal compact treaty in all member states of the EU.”

The commission said domestic demand fell for the fourth successive year in 2011. “For 2012, the contribution to growth from domestic demand is set to be negative once again, albeit smaller. In 2013 the contribution to growth from domestic demand will be essentially flat, as investment levels stabilise, household consumption returns to growth and public consumption continues to be reduced.”

Mr Rehn said Ireland – alongside Spain and Greece – reported the largest declines in relative unit labour costs, and projected further adjustments this year and next.

“In particular, Ireland shows a remarkable adjustment.”