New banking models could be an early sign of the Irish recovery as it moves from the “trench” to a “cave” for businesses and households, says TD Bank.

It also suggests there is a lot of work ahead to bring Ireland back to the financial centre.

Read more about the Irish financial system:What is new?

In its first major quarterly update since December 2015, the National Accounts showed the economy expanded by 2.5pc in the third quarter of 2016, a faster rate than the 3pc growth in the previous quarter.

That was good news for the Government, which has been working to get Ireland out of the “black hole” that has been holding back growth.

The Bank of Ireland, the country’s central bank, said that despite the weak third quarter GDP growth, the economy was still expected to grow by 2pc in 2017.

This is the strongest growth in two years.

And while the recovery has been slow, it is now “on track” to reach its highest level since 2008, TD Bank economist Niall Carson said.

“The latest figures also suggest that we are on track to a strong economic recovery in 2017,” he said.

The growth of 0.7pc in April and 0.4pc in May were both the fastest in three years.

In the three months to April, the value of Irish government debt increased by 6.5 per cent to €2.85 trillion.

A year ago, it was at a record low of €2 trillion.

That’s the first increase in six years, according to the International Monetary Fund.

The GDP grew by 2 per cent in April, 1.7 per cent for May and 1.3 per cent from June.

Inflation was 0.5 percentage points higher than a year ago.

The Government is now forecasting that the economy will grow by 0.8 per cent this year and by 1.5% in 2019.

But Mr Carson said the economy is not just growing, but is expected to expand further.

TD Bank chief economist Niathal Harkin said there was a lot more to come.

“The Government and the Government of Ireland are well on track in the second half of this year, with an even stronger rebound in the early part of next year,” he added.

Mr Carson said a “new banking model” is needed to bring about a “rebound” to the growth of the economy.

As a result, there is much more work to do to bring the economy back to full employment.

“We know that the first half of next month will be a good time to begin looking at the details of a new model,” he warned.

We expect the Bank of England and the ECB to play an important role in helping us to achieve this goal.

“There will be some work to be done in the coming months to build a better banking model and to start to implement these measures, but we are confident that the Government will be able to deliver on its economic recovery plan in the first quarter of next term.”

Read moreThe recovery is expected by the Government to be even stronger than previously predicted. 

The Government has been trying to get the economy to bounce back and that could be at the expense of the Bank.

“In our view, it’s going to take some time to bring this economy back, but there is plenty of time to start the process,” Mr Carson added.

The Bank said that in April the Irish banks, the largest in Europe, had increased their lending to households and businesses by 2,900pc.

That’s an increase of 8 per cent on the previous month, while the banking sector has grown by over 1,000pc.

Read moreTD Bank said the Irish banking system has a long-term resilience and that is a key factor that will help the economy recover.

It said there are a lot less risks now for banks.

Its new model of the banks lending to businesses and to households was also a key part of the recovery, it said.TD Bank economist Dr Niamh Kelly said Ireland is now the most resilient financial centre in the world.

“Ireland has one of the strongest financial centres in Europe,” she said.

“This was a significant contribution in terms of economic growth and a significant boost in economic confidence and public confidence, and it is the most advanced banking system in Europe.”

With the exception of a small but significant negative shock from the Brexit vote in June, we expect that the banking system will continue to perform strongly in the years ahead.

“It is in this context that the Bank is working to increase the capital and liquidity of Irish banks.”

Read MoreThe Government said it is already planning to increase its banking holiday programme. 

A Government announcement on Wednesday will give businesses a break from working on Thursday and Friday, with companies able to do business until 2031. 

It will also give people a day off work to attend a religious service.Read More