The Central Bank of Ireland's Q2 Quarterly Bulletin has revised upwards its forecast for the Irish economy, predicting that it will grow by 3.8 percent - rather than the 3.7 percent that it forecast two months ago.

The report says that "the momentum of recovery in the Irish economy continues to build and broaden," and that improved domestic demand is helping the economy to grow.

Exports of goods and services are expected to grow by 5.7 percent during the year as depreciation of the euro, and continued growth in the UK and the US create favourable conditions for exporters.

The bank has also significantly altered its forecast for the rate of unemployment at the end of this year - down from 10.4 percent to 9.8 percent.

Improvements in the labour market have contributed to a rise in domestic consumption - the Central Bank also says that increases in employment are helping to boost incomes.

It is expected that the general government deficit for 2014 is on course to have fallen to around 4 percent of GDP, which is well below target.

The bank warns that coming Budgets must not exacerbate cyclical pressures - it also says that the banking sector still faces significant challenges.