Preliminary data from the CSO shows the economy grew by 0.9% in 2012, the second year in a row the economy recorded growth.

This was slightly higher than most economists expected.

The Irish growth figure compares with a European Union average for GDP growth of -0.3%

Software, transport and distribution showed the strongest output growth, up by 3.1%.

Exports performed strongly for the third year in a row with growth in net exports of €4.4 billion.

This growth more than offset the fall in domestic demand, which fell by 1.5%.

A fall in manufacturing output and in goods exports - mainly related to the expiry of patents in the pharmaceutical industry - was offset by gains in computer services and software exports.

Initial estimates for the fourth quarter of 2012 show almost no change in GDP compared with the third quarter. GNP declined by 0.8% in the quarter.

"The pressure on domestic demand is easing at a time when the global outlook is uncertain and that is reassuring,” said Austin Hughes, KBC Bank Chief Economist.

"While it certainly wouldn't be right to say that the good times are back, it does give you more optimism that the current Irish growth model isn't broken. It's quite an encouraging set of figures. The worst of the domestic demand adjustment seems to be behind us. I would be a little more encouraged for 2013."

Davy Stockbrokers’ Chief Economist said it was "a bit worrying when you see growth contracting in Q3, flat Q4 and a continued export slowdown", but said overall the figures were positive.

"Growth is slowing year-on-year, but it doesn't really change the Government's picture too much because targets are for 2015. I don't think today's numbers will impact that target too much."