Ireland seen emerging from recession as economy grows

The Irish economy technically emerged from recession in the first quarter, growing for the first time in two years.

However, analysts warned of the emergence of a "two-speed" economy as the data from the Central Statistics Office (CSO) showed the growth was largely driven by multinational companies and exports.

The domestic economy continued to disappoint as consumer spending and capital investment fell over the three-month period.

"The vast majority of employment in a modern economy relates to domestic consumption, not exports. As such, a return to employment growth will depend on a resumption of domestic demand," said National Irish Bank's chief economist Dr Ronnie O'Toole.

The figures indicated a 2.7 per cent rise in seasonally adjusted gross domestic product (GDP) compared with the last quarter of 2009, beating predictions of a 1 per cent rise, but gross national product (GNP), which excludes the contribution of foreign-owned firms, was down 0.5 per cent.

But compared with the first quarter of 2009, GDP at constant prices was 0.7 per cent lower while GNP was 4.2 per cent lower. The CSO said the profits made by foreign-owned firms rose by €2 billion between the three-month period in 2009 and 2010, accounting for the more severe decline in GNP.

"The 'doom-and-gloom' merchants will point to the fact that the increase in the opening quarter of 2010 was just offsetting the decline of 2.7 per cent posted in the final quarter of 2009," said Bloxham's chief economist Alan McQuaid. "Still, the quarterly increase in January-March this year was the first since the final quarter of 2007. So, overall, we think the numbers are very encouraging."

The volume of consumer spending was down 0.8 per cent year on year, while capital investment was 30 per cent cent lower.

Exports were grew by 6.9 per cent on the last quarter of 2009, the strongest quarter on record. Net exports were up €2.6 billion in the first three months of the year compared with a year earlier.

This raised concerns among some analysts, who warned there could be a period of "jobless growth".

"The indicators mask the reality on the ground with a significant disparity between the performance of the multinationals and indigenous business," said Isme economist Jim Curran.

"While the figures indicate that overall the economy is growing, based on GDP figures, significant weaknesses remain. Growth is being generated mainly by the export led multinationals, particularly in chemicals and pharmaceuticals sector. Beneath the surface the indigenous sector remains under severe pressure with investment, sales and employment still weak. The sector is effectively bumping along the bottom."

However, Minister for Finance Brian Lenihan said the economic outlook could be better than previously expected.

“In the December budget, my Department projected a GDP decline of 1.25 per cent. Today’s figures suggest the prospects for growth this year are somewhat better than previously assumed," he said in a statement. "Today’s figures also show that exports are performing strongly, while consumer spending has stabilised. This, coupled with the figures for consumer confidence since April, bode well for the remainder of the year.”

Meanwhile, the volume of output of industry rose 7.7 per cent, but was hampered by continuing weakness in the construction industry, which saw its output decline 35 per cent in the quarter.

The output of the distribution, transport and communications sector was 1.4 per cent lower than a year earlier.

"Things have improved on the Irish economic front in the first half of the year, and at a quicker pace than expected by most economists at the start of 2010," said Bloxhan's McQuaid. "Although we are not completely out of the woods yet, we believe the recession has ended, and assuming the euro zone ‘debt’ issue doesn’t turn into a full-blown crisis, then Ireland should be roaring back up the euro zone GDP growth league table over the next 12 months, led in the main by a strong export performance."

The Green Party welcomed the growth  figures. "This being the first recorded economic growth for several years it signals the technical end to the recession. However, such has been the degree of economic decline experienced over a short period of time that the journey to a sustainable economy remains slow and long," said the party's finance spokesman Senator Dan Boyle.