Ireland's economy will grow 0.9 percent this year and more than double that rate in 2013, a government-funded research body said on Friday, weathering austerity at home to track and likely outpace a gradual upturn in the euro zone.

The forecast for this year from the Economic and Social Research Institute (ESRI) undercut government estimates but was more optimistic than the 0.5 percent projected on Thursday by the European Commission, which said output in the euro zone as a whole would shrink by 0.3 percent.

Ireland, which grew 0.9 percent in 2011, is the only peripheral economy in the currency bloc expected to expand this year and, according to a recent Reuters poll, it could see consumer spending grow in 2013 for the first time since 2007.

Dublin's success in cutting its budget deficit, shrinking its banks and returning to modest economic growth has distinguished it from fellow bailout recipients Greece and Portugal.

But tough austerity measures mean it is relying on exports to drive its recovery and, with a sluggish Europe as a backdrop, it faces a tough task to meet a goal of returning to full debt market funding next year.

The components of domestic demand in terms of household consumption, investment, government spending, all those we see continuing to contract in 2012, but much more moderate rates of contraction in 2013, David Duffy, economic officer at the ESRI, said.

Within the euro zone, policy changes are on the cards to stave off a potential collapse of the euro, which will in turn dent the performance of the private sector this year, also weighing on Irish growth, the think-tank said in a quarterly report.

We expect it (GDP growth) to improve to over 2 percent in 2013, reflecting recovery in the international economy, Duffy added. The think-tank gave a figure for next year of 2.3 percent.


For a graphic on growth forecasts in Europe in 2012 please click here.


Two Reuters surveys, one of chiefly European economists and the other polling mainly economists based in Ireland, recently forecast 2012 GDP growth of 0.3 and 0.7 percent respectively while the government projects 1.3 percent.

The impact of the euro zone crisis on the UK, which is unlikely to meet its fiscal targets unless more restrictive measures are introduced, will also be a significant factor for Ireland.

If you had lower consumption levels and lower investment, that's going to feed through into the Irish economy so you could possibly see lower growth in 2012 and 2013, if the international environment got much weaker, said Duffy.

The ESRI is independent but partly funded by the Irish finance ministry.

(Reporting by Lorraine Turner; Editing by John Stonestreet)