The European Commission has raised concerns about the housing market and the level of public and private debt in Ireland in its annual analysis of Ireland and other EU economies.

Ireland was one of 18 countries identified as having macro-economic imbalances by the Commission, and will be subject to an in-depth review which will be undertaken in co-ordination with the biannual post-programme surveillance missions that take place under the terms of the bailout.

Among the problems identified by the Commission is a high level of private as well as public sector debt. The report found that while private sector debt as a percentage of GDP fell sharply last year, “the ratio remains elevated”, in part because of corporate sector debt on the balance sheet of Irish affiliates of multinationals.

While the ratio of non-performing loans has declined, the Commission notes that it “remains high”.

Housing supply constraints

Difficulties in the housing market were also identified in the report. “Recent pressures largely reflect supply constraints especially in large urban areas,” the report states, noting that pressures are also mounting in the rental market.

The Annual Growth Survey is one of a number of reports issued by the European Commission as part of the European Semester, the EU’s system of economic surveillance introduced in the wake of the financial crisis, and is designed to give member states policy guidance for the following year.

An update on Thursday’s report is expected in February.

Both Germany and the Netherlands were criticised by the Commission for running a trade surplus.

“The very large and increasing external surplus and strong reliance on external demand expose growth risks and underlines the need for continued rebalancing toward domestic sources,” the Commission said in its analysis of Germany, the euro zone’s largest economy, noting that the current account surplus has continued to increase since 2014, boosted by lower oil prices and currency exchange rate developments.

EU GDP rise

Overall, the report notes that GDP across the European Union is expected to rise from 1.9 per cent this year to 2.0 per cent in 2016 and 2.1 per cent in 2017.

EU economics commissioner Pierre Moscovici said that while Europe's economic growth continues to improve "governments should take full advantage of these tailwinds to step up reforms and investment, while maintaining fiscal responsibility."

The report also notes that the refugee crisis is likely to have an impact on public expenditure in some member states in the short term, but may have a more positive impact on labour supply and growth in the medium term.