DUBLIN (Reuters) - Ireland's domestic economy last year grew much faster than initially estimated, with growth revised sharply higher to 2.6% from 0.5% and momentum continuing into the first quarter of this year, official data showed on Friday.

With Ireland's large multinational sector often distorting gross domestic product (GDP), the government and statisticians prefer to focus on modified domestic demand (MDD) to gauge the strength of the economy.

First-quarter MDD was marked down slightly to 1.0% from a provisional reading of 1.4% on Friday, but the upward revisions for 2023 showed consumers handled a cost-of-living crunch much better than initially thought.

The revision was driven by a mark up in personal consumption to 4.8% from the 3.1% expansion initially seen and 4.3% growth in government spending - some of it handed directly to people to help offset the impact of higher inflation - up from a 1.7% estimate.

GDP, which is still the measure used to calculate Ireland's share of activity across the euro zone, contracted by 5.5% last year, a faster rate than the 3.2% initially estimated due to sharper drops in multinational dominated sectors.

GDP rose by 0.7% quarter-on-quarter in the first three months of 2024 versus an initial estimate of +0.9%, the Central Statistics Office said.

Irish GDP had risen rapidly in recent years and by as much as 16.3% in 2021, twice the rate of MDD growth.

"Looking ahead, inflationary pressures have eased considerably. This should boost household purchasing power and, as the year progresses, support growth in our domestic economy," Finance Minister Jack Chambers said in a statement.

(Reporting by Padraic Halpin, Editing by Timothy Heritage and Arun Koyyur)