Recession is over but dole queues will continue to get longer

THE ECONOMY has emerged from recession but could be facing a period of jobless growth, as unemployment continues to rise.

THE ECONOMY has emerged from recession but could be facing a period of jobless growth, as unemployment continues to rise.

The return to economic growth in the first three months of the year, after two years of shrinkage, was the result of a surge in exports. The domestic economy, however, continued to contract as household and Government spending declined and construction and other business investment remained in free fall.

Differing interpretations of the raft of economic data among economists and politicians yesterday reflected the mixed picture the numbers present. According to the most commonly used measure of economic output internationally – gross domestic product (GDP) – the economy expanded by 2.7 per cent in the first three months of the year compared to the final three months of 2009. This was by far the strongest rate of growth among the euro-zone countries.

However, by another measure – gross national product (GNP), which excludes earnings of foreign-owned firms based in Ireland – the economy continued to contract, shrinking by a further 0.5 per cent. Given the unusually large presence of such companies, many analysts believe that this measure provides a more accurate picture of economic conditions.

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Reinforcing the gloomier view was unemployment data, also released yesterday. In June, the numbers signing on rose to 13.4 per cent of the workforce. This suggests that if the economy has continued to grow in the second quarter, this growth could have been “jobless”, or without any rise in employment figures. This commonly occurs in economies emerging from recession.

In the January-March period, exports grew by 6.9 per cent on the last three months of 2009, the highest rate of growth in three years. This was attributable to a very strong increase in manufactured goods, albeit from a low base in the final months of 2009. By contrast, exports of services, such as computer and financial services, which had held up well in the face of sharply lower international demand in 2009, weakened somewhat in early 2010.

Retail sales and consumer confidence indicators in the early months of the year had raised hopes of a rebound in consumer spending – by far the largest component of the domestic economy – but these were scuppered by the new data.

In the first three months of the year, capital investment such as construction spending and purchases of plant and machinery by companies, underwent a further collapse, declining by 13.8 per cent.

The fall, unmatched in its size in any quarter of 2009, reflected the continued shake-out in the once bloated construction sector and companies’ much reduced spending on capital equipment.

John O’Hagan, professor of economics at Trinity College Dublin, said that the economy was now more competitive and adaptable and he saw “no inherent reason why incomes in Ireland cannot increase in years to come by between 2 and 3 per cent per annum”.

Economists representing trade unions and business were less upbeat. Marie Sherlock, an economist with Siptu, described the statistics as “a false dawn for the Irish economy” and expressed concern at the growth in the jobless figures.

Jim Curran, head of research at Isme, the small firms’ association, was also cautious, noting that “the indigenous sector remains under severe pressure”.

Minister for Finance Brian Lenihan said the figures suggest the prospects for growth this year are somewhat better than previously assumed.

Fine Gael’s deputy finance spokesman Kieran O’Donnell said the figures showed the economy was still mired in recession, while Labour’s Joan Burton described long-term unemployment as the “single greatest social and economic challenge facing the country”.