Ireland technically out of recession

GDP grew slightly during the third quarter but the Central Statistics Office (CSO) has urged caution on calling an end to recession

The latest Quarterly National Accounts, which were published this morning, indicate that on a seasonally adjusted basis there was a 0.3 per cent increase in Gross Domestic Product (GDP) from July through to September.

On an annual basis, GDP fell by 7.4 per cent in the year to the end of October, compared to a 7.9 per cent decline in the preceding quarter.

Technically, given that the definition of recession is two quarters in a row of falling GDP, this means that Ireland has now exited recession.

However, at a press conference earlier today, assistant director general of the CSO Bill Keating refused to call an end to the recession, pointing out that much of the rise in GDP was attributed to profits from multinationals based in Ireland.

Whether Ireland was out of recession or not was " a matter of semantics", Mr Keating said.

"The general picture shows that on a seasonally adjusted basis there is a levelling off in GDP but GNP continues to decline, albeit at a slower pace than it has in previous quarters. Contributing to the GDP increase in a fairly major way was growth in the multinational sector," he added.

Analysts also warned against declaring the end of what has been one of the worse recessions ever experienced in Ireland.

GDP is the international method of calculating economic decline but in Ireland's case, the Economic and Social Research Institute (ESRI) and other local bodies prefer to focus on GNP (Gross National Product) a measure which strips out multinational profits, much of which usually leave the country.

According to CSO, profits declared here by foreign-owned enterprises increased by €1,054 million during the year ending October 31st 2009.

During the third quarter Gross National Product (GNP) showed a decline of 1.4 per cent on a seasonally adjusted basis. In the year to the end of October 2009, GNP was 11.3 per cent lower.

A breakdown of the latest CSO figures show that consumer spending was 7.3 per cent lower in the third quarter of 2009, compared to the same three-month period a year earlier.

Captial investment declined by 35 per cent on an annual basis while net exports were 2,813 million higher than a year earlier.

Over the year the volume of output of industry decreased by 9.6 per cent. Within this the output of the construction sector fell by 34.4 per cent.

Output of distribution, transport and communications was down 9 per cent on an annual basis, while output of other services was 3.4 per cent lower, the figures show.

Alan McQuaid, economist at stockbroking firm Bloxham said given that international commentators put so much emphasis on quarterly changes in GDP, we shouldn't 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. "While GDP is set to contract by around 7.5 per cent in real terms in 2009, we still think the average fall in national output could be less than 1 per cent next year."

Commenting on the quarterly figures, Ibec senior economist Fergal O'Brien said the latest data shows the economy is beginning to stabilise.

"In terms of the pace of contraction in the Irish economy, the worst is now clearly behind us. Most sectors of activity are showing signs of stabilisation, with the exception of the construction sector, which continued to lurch downwards in the third quarter," he said.

"Today’s numbers do not change our view that GDP will fall by about 7.5 per cent this year and will drop on an annual basis again in 2010. We can now see some light at the end of the tunnel, however, and the economy should begin to grow again around the middle of next year.

KBC's chief economist Austin Hughes also 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.