Exports lead Ireland out of recession

By Conor Keane Business Editor

Thursday, April 29, 2010

EXPORT growth has led Ireland out of recession in the first quarter of the year, but the sector is not labour intensive enough to reduce unemployment in the short term, Davy stockbrokers believes.

And the independent Brooking House is forecasting no substantial increase in taxes, solid volume growth, excluding construction, of 1% quarter-on-quarter growth in the volume of GNP throughout 2010.

Davy chief economist Rossa White said the Irish economy probably returned to growth quarter-on-quarter in Q1, but he expects unemployment to peak in the third quarter at 13.6% (March 13.4%).

He said survey indicators and hard data (PMI, retail sales, industrial production, consumer confidence and spending) highlight renewed growth across many sectors, not seen for two years.

"The Irish economy has pulled out of recession. We expect growth of 1% quarter-on-quarter in Q1 to be confirmed by the National Accounts at the end of June. That expansion is likely to continue in the second quarter, marking the end of the recession.

"The economy entered recession at the end of 2007. The peak-to-trough decline in GNP was more than 17% in volume and eclipses the 13% peak-to-trough decline experienced in Finland in 1990-1993. No current euro area members have ever experienced a recession as severe as that encountered in Ireland," he added.

Mr White said, on aggregate, Davy thinks the economy will grow 3% in real GNP terms in full year 2011 versus full year 2010. GDP may grow at a faster pace of 4%-4.5%. That compares with an average annual decline of 0.6% in GNP this year but growth of 1% in GDP. Mr White complained that commentators in Ireland seem to have an obsession, almost unique in the developed world, with annual changes.

"Undue focus on the annual average will conceal the turn in the economy at present. For example, we estimate that the economy grew by 1% in the first quarter compared with the final three months of last year. Yet the year-on-year change (from which it is impossible to spot the inflection point) will show a decline of at least 5%."

Mr White said a fact that has received little attention is that economy-wide real income did not decline during the recession.

Mr White believes two of the three negative impulses on consumer spending are dissipating. He expects employment growth will resume from Q4 2010 and he says taxes are unlikely to increase substantially.

This appeared in the printed version of the Irish Examiner Thursday, April 29, 2010