The European Commission has forecast that the Republic of Ireland's economy will grow 3.6% this year, slower than the Irish government's projection.
This would make it the joint fastest-growing economy in Europe along with Malta. The Irish economy is expected to grow by 3.5% next year, Brussels said.
In its spring economic forecast, the Commission said Ireland re-emerged last year as one of Europe's top performers. But it warned that possible public sector pay hikes could push up the deficit next year.
"Economic activity is expected to remain resilient in 2015 and 2016, as domestic demand takes over net exports as the main growth driver," it said.
The 3.6% growth rate is fractionally higher than the 3.5% projected by the Commission in its winter forecast. In its Spring Statement last week, the Irish government forecast growth this year of 4%.
But Brussels cautioned that due to the high level of private debt, the strength of private consumption remains uncertain.
"The government's deficit and debt are forecast to improve on the back of sustained economic activity," the Commission said.
The Commission said unemployment was expected to fall to 9.6% this year, and drop further to 9.2% next year.
The deficit, as a percentage of GDP, is to drop to 2.8% this year, much higher than the 2.3% forecast by the government. Under a no-change policy, the Commission is forecasting the deficit will hit 2.9% next year. Gross public debt will drop to 107.1% of GDP this year, and fall to 103.8% next year.
Meanwhile, Eurozone economic growth will be stronger than previously expected this year thanks to cheaper oil, a weaker euro, stable global growth and supportive fiscal and monetary policies, the Commission said.