The Irish economy will grow faster this year and next year than had been predicted as recently as just last month, the International Monetary Fund (IMF) has said.

The Washington-based fund is forecasting that gross domestic product (GDP) will rise 3.9pc this year, better than the 3.5pc predicted in its most recent staff report. The IMF is also expecting growth of 3.3pc in 2016, up from last month's forecast of 3pc.

The upbeat assessment means the Government remains on target to have up to €1.5bn to spare for tax cuts and increased welfare benefits for its final Budget before the general election. Growth targets now set by the IMF exceed those of the Government, meaning the first ever spring statement on the economy, due at the end of this month, will be carefully watched for clues of how the Government plans to leverage the improving financial situation.

Government sources last night remained tight-lipped about what is to come but it was clear that the latest news will add to the buoyant mood.

It will also be enhanced by new figures showing increased spending by Irish shoppers.

The Department of Finance is currently predicting growth of 3.6pc but this may now be upgraded in the spring statement.

The IMF said that the unemployment rate is also expected to decline at a quicker pace than previously thought, averaging 9.8pc this year, and falling to 8.8pc in 2016.

The projections came as the Central Statistics Office revealed that households saved less last year because they loosened the purse strings, highlighting the recovery in domestic demand. Domestic demand contributed to economic growth last year for the first time since the crash.

Preliminary estimates show that household savings fell by €1.4bn to €10.04bn last year.

The change is driven by an increase in household spending of €1.89bn last year, even though household disposable income only rose by €608m during the year, the CSO said.

The gross savings ratio households, which expresses saving as a percentage of gross disposable income, decreased from 12.7pc in 2013 to 11.1pc.

The data shows that in the final three months of last year, household disposable income dropped by €147m down to €22.74bn.

Irish Independent