GDP edges up amid difficult conditions
THE ECONOMY technically emerged from recession in the third quarter, according to new data from the Central Statistics Office (CSO).
But the 0.3 per cent growth in Gross Domestic Product (GDP) from July to September was due to higher profits at multinational companies. Stripped of this effect, national income or Gross National Product (GNP), fell 1.4 per cent, indicating that difficult conditions persisted in the third quarter.
The CSO’s assistant director general Bill Keating refused to call an end to the recession, pointing to the impact of multinational profits. Whether Ireland was out of recession or not was “a matter of semantics”, Mr Keating said.
A recession is usually defined as two consecutive quarters of falling GDP. On this basis, Ireland has now exited recession.
However, Tánaiste and Minister for Enterprise Mary Coughlan said the Government was “very cautious” about the significance of the GDP growth in the CSO’s data.
“We are very cautious about this because we still have a lot of difficulties to deal with. I think it’s good to see we are progressing slowly which is perhaps a better way to progress,” she said.
“I would certainly say that the policy that is being used, the industrial policy, the economic policy, in this country is strident and progressive and is moving towards getting us out of the economic difficulty that we presently have.”
On an annual basis, GDP has fallen 7.4 per cent, while GNP has plunged 11.3 over the past year.
Fine Gael deputy leader Richard Bruton said Ireland was still “mired in recession” at a time that the euro zone economy was “powering ahead”. The CSO figures made Minister for Finance Brian Lenihan’s Budget claim that the economy had “turned a corner” look “pretty rash”, he said.
“The upswing in GDP is also little comfort to the 423,000 people still languishing on the dole,” he added.
Labour Party deputy leader Joan Burton said the idea that the economy had turned a corner was “more hope than reality” and that consumer confidence was “on the floor”. Consumer spending has fallen 7.3 per cent in the third quarter, compared to the same period last year, the CSO said.
Although the decline in GNP is easing, economists were hesitant to say Ireland’s woes were over.
KBC’s chief economist Austin Hughes rejected the idea the recession was over saying the quarterly GDP increase does not reflect the reality of the drop in incomes and employment experienced in Ireland over the past year. “It is more accurate to suggest the recession eased rather than ended in the third quarter,” he said.
GDP is an international method of calculating growth and decline but in Ireland’s case, the Economic and Social Research Institute (ESRI) and other forecasters prefer to focus on GNP because it excludes multinational profits.
Ulster Bank said the data “sent mixed signals about the recent performance of the Irish economy” and that it was clear that there was a “two-speed economy” in place.
Previously released figures suggest it is the multinational-dominated pharmaceuticals, chemicals and ICT sectors that are shoring up exports, while traditional manufacturing has suffered, the bank’s economic research team noted. This meant the boost to GDP had a “relatively narrow source”.
According to the CSO, profits declared here by foreign-owned enterprises rose by over €1 billion in the year to the end of October.
Alan McQuaid, economist at stockbroking firm Bloxham, said given that international commentators put so much emphasis on quarterly changes in GDP, we should not downplay the third quarter increase. He said we should take some consolation that on this basis, Ireland came out of recession ahead of the UK.
“Overall, we continue to believe that the Irish economy is making progress and is heading in the right direction,” said Mr McQuaid.