The economy is recovering faster than expected, according to the Economic and Social Research Institute.

It's forecasting economic growth this year of 2% and expanding by 2.7% next year.

The ESRI says the improvement is because employment is rising and consumer spending is picking up.

However, the think tank has urged Finance Minister Michael Noonan not to ease up on austerity in next week's budget. 

The institute wants the government to press ahead with the full €3.1 billion of tax increases and spending cuts - despite a headline figure of €2.5 billion euro announced yesterday.

It says one more tough budget is better than dragging out the austerity over two more years.

Professor John Fitzgerald of the ESRI says an increase in the numbers in work is helping the economy:

Meanwhile the Department of Finance is warning that the economy could shrink by 4% over four years thanks to the 'patent cliff'.

It's published new research this morning suggesting that the value of Irish exports will fall significantly because the patents on drugs made here are expiring.

It also warns that corporation tax could fall slightly as a result of falling profits at pharmaceutical companies.

Ireland's responsible for 7.4% of the drugs market - or two out of every 27 tablets sold worldwide.