Exit from recession will help return to markets

Ireland exited a double-dip recession by posting 0.4% GDP growth over the second quarter compared with a 0.6% contraction over the first three months of the year, according to figures released by the CSO.

The figures will be watched closely by investors as Ireland attempts to make a full exit from the EU/IMF bailout programme in November. Even though the growth rate is anaemic, most economists expect the recovery to gain momentum over the second half of this year and into 2014.

The rebound was helped by a healthy pick-up in consumption, which grew by 0.7% compared with the previous quarter. Investment, including the volatile aircraft sector, contracted by 3.4% over the second quarter compared with the first three months. However, building and construction spending is now up by 11.3% on the year and machinery and equipment, excluding aircraft, is up by 11.8%.

Exports were up a healthy 4.35% while government spending was down 1.3%.

The latest Ernst & Young Eurozone Economic Forecast says that Ireland has a good chance of making a full return to the financial markets, following the bailout. It expects Ireland’s GDP to grow by 1.7% in 2014, accelerating to 2.8% between 2015 and 2017.

Moreover the unemployment rate is expected to drop from 13.5% this year to 12.2% in 2015.

Net trade is likely to be the main driver of Ireland’s growth in the near term. The Government’s steady reform implementation has led to improved competitiveness, while demand in Ireland’s main trading partners — the UK and the Eurozone — is beginning to pick up. Exports are forecast to increase by over 4% in 2014 and 2015, which should provide significant support to the economy, said E&Y.

Mike McKerr, managing partner, EY Ireland, commented: “Looking ahead, Ireland’s economy needs to diversify its export markets to fully tap into the growth offered by emerging and rapid growth economies as current penetration of these markets, such as China, India and Brazil, is relatively small. Recent success in securing full market access to China for salmon exports will provide a major boost to our growing seafood sector.

“While strong growth in world trade and a weakening euro will assist Irish exporters, this alone will not be enough to sustain the recovery. It is important for the domestic economy to gain momentum,” he added.

Overall, E&Y expects the eurozone’s nascent recovery to take hold, although the upside will be constrained by deleveraging due to the still high levels of public and private debt and the challenges facing the financial sector.