Economic prospects at home and internationally have improved, with new data suggesting the Irish and US economies are recovering rapidly.

According to new seasonally adjusted data, the CSO suggests that the rate of economic growth, as measured by gross national product (GNP), rose by 3.1 per cent on a year-on-year basis in the second quarter of 2003.

A 2.1 per cent increase in consumer spending during those months underpinned much of the recovery, with signs of improvement on other fronts too.

In the US, the Commerce Department said that US gross domestic product (GDP) rose to a 7.2 per cent annual rate in the July-September period. It was the strongest advance since the first quarter of 1984 and more than double the 3.3 per cent recorded in the second quarter.

Analysts had been expecting a 6 per cent expansion, with strong consumer spending triggering faster economic growth during that period.

Commenting on the CSO figures yesterday, Friends First economist Mr Jim Power said the data confirmed that the Irish economy had stabilised in the second quarter but he cautioned that the export sector remained fragile.

"The ongoing areas of concern are on the export side. The rate of decline is decelerating and there should be a stronger export performance in the second half of the year."

Mr Power added that the strong value of the euro continued to represent a threat to the ongoing recovery of the Irish economy.

Davy Stockbrokers noted the "surprisingly good outturn" given that none of the available activity indicators had predicted an upswing of this magnitude.

The CSO said that capital investment, measured at 1995 constant prices, declined by 5.7 per cent in the second quarter compared with the same period last year.

Within this, investment in housing increased by 18.4 per cent, other construction activity fell by 12 per cent, and investment in machinery and equipment fell by 12 per cent.

Mr Power said this suggested that the business sector remained very cautious in the second quarter but there were signs of improved confidence.

The CSO said that, as well as excluding the profits of foreign-owned enterprises, GNP is also affected by other income flows between residents and non-residents, the timing of which can be very variable on a quarterly basis.

In the US, stocks rallied briefly on the GDP data before settling back to slightly stronger levels. The news also pulled the dollar off its recent lows.

Treasury Secretary Mr John Snow told the Senate banking committee that the US economy was really getting back on path.

He said he was particularly encouraged by a sharp pick-up in business spending. "As that happens, jobs follow," Mr Snow said.

Ms Cary Leahey, senior US economist at Deutsche Bank Securities, said the figures suggested a strong fourth quarter.

"This is a great report for the economy. Not only was the headline strong, but the mix was good and it implied a good fourth quarter."

Consumer spending rose by 6.6 per cent, the biggest increase in consumer spending since early 1988 and accounted for nearly two-thirds of GDP growth. - (Additional reporting, Reuters)