Davy Stockbrokers yesterday raised its growth forecasts for the Irish economy, citing strong momentum in consumer and investment spending.

Chief economist Robbie Kelleher said he now expected gross national product (GNP) to grow by 6 per cent this year, compared with the original forecast of 5 per cent.

GNP growth in 2007 is anticipated to be 5 per cent.

Consumer spending will increase by 7.5 per cent this year and 6 per cent next year, helped by the anticipated release of €16 billion worth of Special Savings Incentive Accounts (SSIAs), according to Mr Kelleher. Davy forecasts that about 35 per cent of SSIA savings will be used to finance higher spending.

"This will be the strongest rate of growth since the heady days of the Celtic Tiger in 1999 and 2000," said Mr Kelleher. At that time the Irish economy was growing by about 9 per cent. Last year GNP growth was 5.4 per cent - the most rapid rate since 2000.

Investment spending is forecast to grow by 10 per cent this year, according to Davy, with house completions rising to a new record level of 85,000, compared with the 81,000 achieved last year.

Overall, Davy is forecasting growth in the construction sector of 8 per cent this year.

However, while the overall outlook for the economy is positive, strong growth in consumer spending may have a negative impact on inflation, Davy said.

As a result the broker has raised its forecast for inflation to 3.5 per cent for this year and next, compared with 2.5 per cent last year.

It also said the balance of payments is likely to deteriorate significantly despite an anticipated pick up in exports.

Euro-zone interest rates will likely rise to 3.25 per cent by the end of the year, according to Davy, and better-than-expected tax revenues will help boost next year's Budget.