Gross domestic product (GDP) will rebound sharply, the Economic and Social Research Institute (ESRI) forecast in its latest report, upgrading the previous 2011 estimate of 1.5 percent. The economy shrank by 1.0 percent last year.
Further ahead, the Irish economy is set to pick up steam and grow by three percent in 2012, according to the ESRI. That was upwardly revised from prior guidance of 2.25 percent.
Ireland, once known as the Celtic Tiger, was severely battered by the global financial crisis, a domestic property market meltdown and a fierce recession.
Late last year, it was forced to seek an 85 billion euro rescue package from the European Union and the International Monetary Fund as massive debt and deficit problems left the country on the verge of collapse.
"We see the economy as being in a process of transition from one where domestic demand was the driver of growth to one where exports will play an important part in economic recovery," the ESRI added on Wednesday.
"Firms in several traditional sectors are seeking markets abroad to compensate for depressed domestic demand. Meanwhile exports of multinationals continue to grow as competitiveness is regained."
The ESRI expects domestic demand to remain very weak this year, with investment and government expenditure declining and household expenditure static.
It attributes the weak demand "primarily to the negative effect of contractionary fiscal policy."
The think-tank added that Ireland's public finances are also in a process of transition to a new lower level of expenditure and revenue.
"The official budget targets, modified by the extra cost of bank restructuring this year, are achievable. If the profile set out by government is maintained, then public debt will be sustainable," it said.
With the need to return to financial markets in the near future, the Institute added that attempts should be made to eliminate the budget deficit faster than is currently envisaged.
Meanwhile on Tuesday, EU Economic Affairs Commissioner Olli Rehn said to "expect" a drop in the interest rate charged under Ireland's international bailout, after months of fighting by Dublin for fairer terms like Greece.