The Government faces the prospect of a clamour to increase both tax cuts and public spending in the October budget after new data said the economic recovery is accelerating.

A revision of data for 2014 by the Central Statistics Office found the economy grew at a faster rate than previously recorded, with value of activity rising to levels not seen since 2007, just before the crash.

While Michael Connolly of the CSO’s national accounts division said population growth since then meant income-per-person remained lower, the overall economy was now the same size it was before the crisis struck.

The CSO said gross domestic product (GDP) grew by 5.2 per cent in 2014 to €188.78 billion, an increase of 0.4 percentage points on previous assessments.

With GDP growing at 6.5 per cent in the first three months of this year compared with the same period 2014 and at a rate of 1.4 per cent over the final quarter of 2014, economists were quick to upgrade forecasts for the entire year.

Tax cuts

Such developments improve the Government’s fiscal position ahead of the October budget, but they present the likelihood of pressure to exceed a maximum €1.5 billion package equally divided between tax cuts and spending increases.

Minister for Finance Michael Noonan has been insisting that there is no scope to beyond the €1.2 billion to €1.5 billion range set out in the spring but the Central Bank has already moved to question the need for any expansionary measures in the budget.

Mr Noonan issued a statement noting robust growth in “most sectors of the economy, both domestic-facing and exporting”. The task now was to build on such gains, he added. “The Government will continue to work to support sustainable growth in order to improve living standards and reduce unemployment further.”

Although the Government’s current forecast suggests GDP will grow by 4 per cent this year, some analysts said the latest figures suggested growth in excess of 5 per cent was in again in prospect.

Growth

“It is quite clear from these latest figures that Ireland will easily top the euro zone growth league table for the second-year running. Before the release we were forecasting real GDP growth in the 4-5 per cent range for 2015,” said Merrion stockbrokers economist Alan McQuaid.

“We would now say that growth is more likely to be in the 5-6 per cent range.”

Analysts at Davy stockbrokers suggested growth was more likely to come in within a range of 4.5 per cent-5 per cent. A key dimension in the figures is that the increase in the overall or nominal value of GDP improves key fiscal metrics by which fiscal performance is judged.

Previous and anticipated advances in the value of GDP will bring down the debt-to-GDP ratio and the deficit-to-GDP ratio.

“This will have very significant positive implications for debt, deficit and the amount of tax revenue Government will take in,” said Ibec chief economist Fergal O’Brien.

“The improvements to the debt and deficit ratios from the data make any balance sheet issues surrounding Irish Water look fairly marginal.”