Ireland expected to record highest economic growth in Europe in 2018
Meanwhile, the commission cut its forecasts for the eurozone's GDP growth this year
Ireland's economy is expected to record the highest growth in the EU this year, according to latest forecasts from the European Commission.
Gross domestic product (GDP) is estimated to grow by 5.6pc in 2018 and by 4pc next year, largely driven by domestic demand.
In contrast, the EU executive estimated that the eurozone GDP will only grow by 2.1 pc, lower than the 2.3pc forecast in its May report.
"While the outlook for the euro area has slightly worsened, the overall external economic environment is expected to remain broadly supportive of Irish exports over the forecast horizon," read the report.
However, while citing the strong momentum of the labour market and construction investment in the first six months of the year as "encouraging", the commission warned of possible threats to economy growth.
"Risks to the macroeconomic outlook are tilted to the downside. Uncertainty relates primarily to the ongoing negotiations between the UK and the EU," it said.
"As a highly open economy, Ireland is particularly exposed to changes in the international taxation and trade environment. Activities of multinational companies could swing headline GDP growth in either direction."
In the short term, the commission predicts that domestic economic activity is projected to continue growing at a solid pace.
Overall, the commission cut its forecasts for the eurozone's economic growth this year.
The top reasons for its revision trade included tensions with the United States and rising oil prices which push the bloc's inflation higher.
The slowdown of the euro zone economy is set to affect all major economies of the bloc, but is expected to hit Italy harder, as the country will record the lowest growth rate in Europe.
This low growth rate is expected to be matched only by Britain among all 28 EU countries.
Meanwhile, rises in the cost of energy, petrol and diesel along with higher prices of some groceries has pushed up the rate of inflation here.
There was also another rise in rental costs, some diary products, and cigarettes, according to the latest consumer price index from the Central Statistics Office (CSO).
The CSO said prices on average were 0.4pc higher in June compared with the same month last year.
The inflation rate was 0pc in 2016.