By Padraic Halpin
DUBLIN (Reuters) - Ireland nudged up its growth forecasts for 2014 and 2015, reversing a trend of downgrades over recent years but the government is sticking with planned tax increases and spending cuts to reduce a still high budget deficit.
Employment is growing strongly in Ireland, with consumer sentiment near a seven-year high and house prices rising after a spectacular property crash as the government looks to drive down one of the highest public debts in Europe.
While the economy unexpectedly contracted last year as weak exports took the sheen off an EU/IMF bailout exit, the finance ministry inched up its forecast for gross domestic product (GDP) growth to 2.1 percent this year from 2 percent previously and to 2.7 percent for 2015 from 2.3 percent.
"Although GDP was weak last year, it was impacted by sector-specific developments," finance minister Michael Noonan said in a statement, referring to the expiry of patents held by Ireland's large cluster of drugs companies that hurt exports last year.
"The Irish economy is performing well and we are forecasting a strengthening of this recovery. Most importantly this recovery is translating into jobs."
The recovery this year will be led by consumer spending and investment, the finance ministry said, with employment growth boosting household incomes and improved confidence pushing down savings rates that jumped when the financial crisis hit.
Irish unemployment, now below the euro zone average after falling to 11.8 percent from a 2012 high of over 15 percent, is forecast to drop to 11.5 percent by the end of this year and 9.7 percent by the end of 2016.
That compared to a figure of 12.4 percent forecast for 2014 just six months ago and bodes well for Prime Minister Enda Kenny's goal of driving it under 10 percent before the next parliamentary elections, scheduled for April 2016.
If Ireland can hit its growth targets, its gross debt is projected to fall to 121 percent of GDP by the end of 2014 and 107 percent by 2018 from last year's peak of 124 percent.
The updated fiscal plan also showed that Ireland should not reduce the 2 billion euros (1.6 billion pounds) of tax hikes and spending cuts planned for next year, the final budget of an eight-year austerity drive that has seen 30 billion euros or close to 20 percent of annual output taken out of the economy.
Such an adjustment would see Ireland's budget deficit fall below an EU-target of 3 percent by 2015 from a projected 4.8 percent for this year.
The finance ministry advised the government to stick to its budgetary plan this time last year but Noonan found room to reduce the level of cuts by 20 percent when he presented his budget for 2014 last October.
(Reporting by Padraic Halpin; editing by Keiron Henderson)