The EU Commission and European Central Bank have told the Government that "important challenges" remain to be overcome even as the economic recovery broadens.

Despite significant progress made since the bailout exit one year ago, the two European institutions said that the macroeconomic adjustment process should continue.

Ahead of a formal assessment of budget 2015 next week from the commission, the two bodies said the Government should stand ready to adopt “additional” fiscal measures to address potential future risks to its financial plan.

“More ambitious deficit targets for 2015 and 2016 would help to bring the still very high government debt-to-GDP ratio firmly on a downward path,” they said.

In a statement issued at the end of a week-long inspection, which included the IMF, of the Government’s affairs the two EU bodies also said there was still some uncertainty over the strength of the recovery in exports.

They noted continued spending overruns in the health service , saying further reforms were required to achieve efficiency gains and better control over expenditure without compromising healthcare delivery.

They also noted that the enactment of draft laws to reform the legal professions, expected by the end of this year, will not take place as planned.

While enactment is now expected some time in 2015, the commission and the ECB said the establishment of multidisciplinary practices faces increased uncertainty.

“Unemployment – particularly long-term and youth unemployment – remains high,” they said.

“Deleveraging of public and private debt is progressing, but the debt overhang remains a significant challenge to the economy, calling for sustained fiscal consolidation and financial repair. The recovery in the banking sector is still on-going.”

The statement said the budget deficit this year is now likely to turn out “slightly above” the most recent Government forecast of 3.7 per cent of economic output , but said remained well within the original ceiling of 5.1 per cent and down from 5.7 per cent in 2013.

“The improvement reflects several factors, notably the stronger than expected economic recovery, higher revenues from central bank profits, some expenditure restraint and the upward revision of GDP alongside the new national accounting methodology.”