The Irish economy is set to continue growing at a faster rate than the rest of Europe in 2003 and 2004, according to a report published yesterday.

Pricewaterhousecooper's (PWC) European Outlook for June predicts that the State's growth in gross domestic product (GDP) terms will fall from 6 per cent in 2002 to 3.25 per cent this year.

The multinational accountancy and business consultancy firm expects growth to pick up to 4.25 per cent next year. However, it warns that this will depend on stronger export growth driven by a recovery in global demand.

PWC adds that despite these risks, Irish GDP growth should remain well ahead of expected EU averages of 1 per cent for 2003 and 2 per cent in 2004.

The firm believes there is a significant risk of the biggest EU economy, Germany, falling into recession this year. It forecasts that GDP growth will be just 0.25 per cent, but it is says there should be a gradual recovery to 1.5 per cent next year.

It expects growth of just 1 per cent in France, Italy and the Netherlands and 2 per cent in the UK and Spain this year. Assuming a "reasonably robust rebound" in the world economy in 2004, growth should reach the 2 per cent to 2.75 per cent range in all these countries next year.

The report notes that Irish GDP growth defied most predictions last year to come in at 6 per cent. But after multinationals repatriated their profits, this reduced gross national product (GNP) to 1.4 per cent.

Export performance remained solid at almost 5 per cent, down from 6.7 per cent in 2001. The report points out that performance varied by sector, with large increases in pharmaceuticals and a fall in information, communications and technology (ICT).

An increase in public sector employment helped to offset job losses in the private sector. But PWC says unemployment edged up to reach 4.5 per cent of the workforce by February.

A slowdown in earnings growth put the brakes on household consumption, slowing expansion in this area to 2.5 per cent.