The European Commission has forecast Ireland's economy will grow 3.6pc this year, slower than the Government's projection.
This would make it the joint fastest-growing economy in Europe along with Malta. The Irish economy is expected to grow by 3.5pc next year, Brussels said.
In its spring economic forecast, the Commission said Ireland re-emerged last year as one of Europe's top performers. But it warned that possible public sector pay hikes could push up the deficit next year.
"Economic activity is expected to remain resilient in 2015 and 2016, as domestic demand takes over net exports as the main growth driver," it said. The 3.6pc growth rate is fractionally higher than the 3.5pc projected by the Commission in its winter forecast.
In its Spring Statement last week, the Government forecast growth this year of 4pc.
But Brussels cautioned that due to the high level of private debt, the strength of private consumption remains uncertain.
"The Government's deficit and debt are forecast to improve on the back of sustained economic activity," the Commission said. The Commission said unemployment is expected to fall to 9.6pc this year, and drop further to 9.2pc next year.
The deficit, as a per cent of GDP, is to drop to 2.8pc this year, much higher than the 2.3pc forecast by the Government. Under a no-change policy, the Commission is forecasting the deficit will hit 2.9pc next year.
Gross public debt will drop to 107.1pc of GDP this year, and fall to 103.8pc next year.
Meanwhile, Eurozone economic growth will be stronger than previously expected this year thanks to cheaper oil, a weaker euro, stable global growth and supportive fiscal and monetary policies, the Commission said. It also forecast a pick-up in inflation later this year and falling unemployment.
The Commission expects Eurozone growth to accelerate to 1.5pc in 2015 from 1.3pc forecast three months ago. It kept unchanged its previous forecast of 1.9pc growth for next year.
"The European economy is enjoying its brightest spring in several years, with the upturn supported by both external factors and policy measures that are beginning to bear fruit," said Economics Commissioner Pierre Moscovici.