Despite the recent shrinking of the manufacturing and exporting sectors, the Irish economy is set to grow this year.

That is according to the Irish Exporters Association, which said that the export of services will support a rise in overall exports this year over last.

Services exports rose by 8% in the first quarter of 2013 and now account for 52% of total exports.

But merchandise exports fell nearly 10% between January and March from the previous three month period, the association said in its latest quarterly review. The fall came as austerity hit the UK and recession affected many euro-area countries.

''The services exports sector continued to be driven by the strong performance of the IDA in attracting foreign direct investment companies to locate their software, gaming, internet social media services operations in Ireland, as well as research and development operations and financial services facilities,'' IEA's chief executive John Whelan said.

The IEA noted that exports to the UK fell by 24%, while they slumped by 39% to Belgium, by 17% to France, by 11% to Italy while exports to Spain dropped by 16%.

The association said that agri-food exports returned to growth, despite the horse meat scandal, and increased by 7.5% in the first three months of the year. Beverage exports also continued their steady growth, driven by global demand for Irish whiskey.

The IEA said it expects exports of Irish goods and services will rise overall to €182.3 billion this year, up 3.3% from last year, because of demand for services.