By Conor Humphries
DUBLIN (Reuters) - The European Union and European Central Bank on Friday urged Ireland to continue to cut its budget deficit, weeks after the government signalled to voters that the austerity era was over.
Ireland last year became the first country to exit a bailout programme from the EU, ECB and International Monetary Fund, and is forecasting the highest growth rates in the euro zone this year.
But the EU and ECB, which continue to hold joint monitoring missions every six months, said that although Ireland would meet its target of a budget deficit of below 3 percent this year, it should consider further tax hikes or spending cuts.
"Despite significant progress, the macroeconomic adjustment process needs to continue," the EU and ECB said in a statement which urged the government to be prepared for further measures to address "future fiscal risks".
"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," the statement said.
The government is forecasting gross national debt to fall to 110 percent of GDP by the end of the year.
The statement acknowledged the sharp improvement in Ireland's economy, forecasting gross domestic product growth of 4.6 percent next year, just short of the government's 4.7 percent forecast.
But it warned that weakness in other euro zone countries and question marks about the sustainability of strong exports posed threats to the recovery and the national debt remained too high.
Austerity fatigue has in recent weeks fuelled some of the largest protests since the bursting of a property bubble in 2008 brought down Ireland's banks and forced it into a bailout.
The government, which claims the end of austerity as its biggest achievement, is hoping to avoid any return to cutbacks in the next budget, which will be less than six months before a general election.
The EU statement praised progress by Ireland's main banks in regaining profitability, but said the sector needed to pass on low rates to consumers. Mortgage rates in Ireland are among the highest in the European Union.
"The transmission of low funding rates to the real economy is key to sustain economic growth and create jobs," the statement said.
(Reporting by Conor Humphries; editing by Andrew Roche)