THE International Monetary Fund has more than doubled its growth estimate for the Irish economy this year to 3.6pc.
The forecast by the Washington-based institution, which was a member of the Troika involved in the 2010 bailout, is the best IMF forecast for any country.
It had been predicting growth for Ireland of only 1.7pc.
The news came as the Economic and Social Research Institute (ESRI) said the Government will easily meet a crucial EU deficit target without imposing any austerity measures beyond water charges in next week's Budget.
However, the think-tank cautioned against any giveaways over the coming years, warning that there should also be a neutral Budget - without any changes to tax or spending - in 2016.
The ESRI hiked its own forecast for growth this year to 5pc - slightly more optimistic than the forecast from the Department of Finance of 4.7pc.
It said the country would be able to return to full employment earlier than the 2020 target set by the Government, and run a surplus by 2016.
In its latest economic commentary, the ESRI said the Government should use next week's budget to introduce a €500m investment programme focused on social housing, made up of €400m from water charges and €100m from savings achieved under the Haddington Road Agreement.
This would help deal with the housing supply issue while also stimulating the economy to encourage further growth, the ESRI said.
"This investment programme would help to consolidate growth while also tackling one of the most pressing economic and social policy concerns at this point, namely the supply side of the residential property market," said Kieran McQuinn, co-author of the commentary.
The ESRI said that if the Government opts to do nothing more but water charges in the Budget, the deficit could be reduced to 2.1pc of the value of the economy.
The Government must come in below 3pc by the end of next year under EU rules.
Prof John FitzGerald signalled the institute was not against the plan for tax concessions as long as the overall plan was prudent, saying it would not dramatically change the forecast.
The ESRI forecast that GDP will rise 5pc this year and 5.3pc next year, with the improved projections driven by a better than expected trade performance, a pick-up in investment levels and the strong tax take. Unemployment will dip to 9.6pc next year, it added.
Meanwhile, although the IMF had good news about Ireland's economy, it cut its projections for global growth fractionally to 3.3pc for the third time this year. It warned in its World Economic Outlook primarily of weaker growth in Eurozone countries.
The IMF's gloomy projections will set the stage for the gathering of the world's top economic policymakers in Washington this week, who will meet to discuss how to deal with a flagging global economy as the US gets ready to end its quantitative easing policies.