IRELAND is set to grow faster than any other economy in the eurozone this year and next year except for Estonia and tiny Malta, the European Commission forecast yesterday.
The economy will expand by 1.1pc this year and 2.2pc next year, it predicts. Adding to the positive sentiment, Irish stocks posted the biggest one-day gain since last June to close at a four-year high.
While the rises in growth are small, it would mark the third and fourth straight year of economic expansion and stands in marked contrast to many other countries in the single currency area which are contracting at the moment.
This year's forecast is in line with government predictions but the commission is more upbeat than Finance Minister Michael Noonan about the prospects for 2014.
Unemployment is also forecast to decline slightly from 14.8pc last year to 14.6pc this year and 14.1pc next year.
Finance Minister Michael Noonan warned at a speech at the Institute of Taxation last night that there was a danger that people were becoming too optimistic as the economy slowly crawled back to life.
His warning was echoed by Moody's, the only major rating agency that still rates Irish bonds as junk.
Kristin Lindow, the new lead analyst for Ireland at Moody's, told Dow Jones yesterday that Ireland was on course to emerge on schedule from the troika-backed bailout this year.
Any upgrade by Moody's could therefore potentially lead to a further significant lowering of the borrowing costs facing Ireland as it continues to re-engage with markets for the first time in almost three years.
While Ms Lindow praised Ireland's "excellent compliance" to its bailout terms, she added that Moody's negative outlook on the economy continues to reflect the country's weak economic growth, weak banking system, high debts and the risk that our export-led recovery could still be hobbled by slackening world demand for its exports.
She also cautioned that Mr Noonan's hopes of rescheduling bailout loans with eurozone authorities would probably be delayed until after key elections in a number of European countries later this year.
"Economic and financial concerns still weigh on the current outlook," she said.
"Right now, the economy has been expanding, but at a very slow pace for the last two years.
"It will be important from the standpoint of the debt dynamics, from the standpoint of the labour market situation, essentially everything hinges on the restoration of normal financial conditions in Ireland, and of course the timing of that is quite uncertain."
Analysts are watching closely for any signs of change in Moody's assessment of Ireland's prospects because some potential investors are banned from buying Irish sovereign bonds while the ratings firm maintains its junk rating on the country's debt.
Rival Standard & Poor's upgraded its rating for Ireland earlier this month.
Fitch Ratings changed its Irish debt outlook to stable in November.