Relief that the Irish economy is no longer in recession is tempered with some concern that the recovery now underway remains sluggish. In the second quarter, the national accounts showed the economy returning to growth, with gross domestic product - a measure of national output – rising by 0.4 per cent. But on a year-on-year basis, economic activity has declined by just over 1 per cent. Quarterly figures for the Irish economy can be volatile, and are frequently subject to revision. Nevertheless, there are some encouraging signs that with the economy exiting from recession, the economic outlook for the months ahead has also improved.
Ireland remains hugely reliant on export-led growth to sustain economic recovery. Figures for the second quarter – which saw exports rise by 4 per cent following a sharp contraction in the previous quarter – should be sustained for the rest of the year, as global economic activity picks up, with the US, and later Europe, serving as the main engines of growth.
One of the disappointing aspects of the performance of the Irish economy in 2013 has been slower than anticipated export growth, which has depressed overall economic growth. In part, this is explained by weak demand in Ireland’s main export markets. Another reason is the negative impact on the pharmaceutical sector of the patent cliff. As more blockbuster drugs lose patent protection and face increased competition from cheaper generics, the profits of pharmaceutical companies have suffered as their revenues fell. This has meant a decline in the value of pharmaceutical exports, a key sector of the domestic economy, which has also resulted in hundreds of job losses.
As Ireland prepares to exit the bailout programme later this year, much will depend on the performance of the export sector in boosting growth, thereby making it easier for Ireland to meet its demanding budgetary targets, and so ensuring that the support and confidence of international lenders is maintained.