The Republic is among those countries in the European Union that are expected to have the highest economic growth rates for this year and 2006.

According to the European Commission's Spring Economic Forecasts, published yesterday, the Republic's gross domestic product is expected to grow by 4.9 per cent in 2005 and 5.1 per cent next year.

These forecasts place it among the best performing member states within the EU with only the Baltic countries - Latvia (7.2 per cent) Lithuania (6.4 per cent) and Estonia (6 per cent) - expected to do better this year.

The Republic's growth is also a significant pickup on last year which saw a 4.9 per cent growth in GDP.

Employment is also expected to increase by 1.8 per cent this year while the percentage of unemployed is predicted to be 4.6 per cent.

Looking at 2004, the report says that while consumer demand remained relatively muted in Ireland, investment was stronger.

"In particular, residential building contributed significantly to overall growth," says the report.

For this year, the report says that "private consumption is supported into 2005 by healthy employment growth and... by somewhat stronger consumer confidence".

The commission's report goes on to say that "some easing in construction activity is foreseen, mainly as housing output is expected to taper off somewhat after reaching record levels in 2004".

For the country's public finances, 0.6 per cent of GDP is forecast for 2005 as compared to 1.3 per cent last year.

But the report warns that there is a risk to this projection saying that no allowance is made for the "as yet unclear implications for public finances of a recent court ruling on nursing home payments".