Recent data indicate that we are finally moving out of the economic slump, with the United States leading the way, writes Cliff Taylor, Economics Editor

There have been a few cases of "they think it's all over" in the past couple of years, as economic analysts predicted the end of the international downturn. Perhaps it is now.

US growth figures for the third quarter, published yesterday, showed the strongest quarterly growth rate in 19 years.

While the annualised 7.2 per cent increase in the third quarter may overstate the underlying growth rate a bit, there is now no argument that recovery is under way in the US.

The sustainability of the upturn, of course, is another question, but forecasters are encouraged by strong consumer spending and a rebound in business investment.

Perhaps things have started to come right for the Bush re-election campaign, with signs now that the jobs market is starting to join the recovery.

The Irish economy is heavily dependent on US trends, with the US representing a major export market, an important source of tourism and, crucially, the key source of inward investment. It has also been the world's growth engine in recent years.

And the latest Irish economic growth figures, published yesterday, suggest that the worst may also be over for the Irish economy.

Gross national product (GNP) growth in the Republic jumped from a lacklustre annual rate of 1 per cent in the first quarter of this year to 3.1 per cent in the second quarter, a surprisingly large increase.

Caution is needed in interpreting quarterly data and the GNP figures seem to contrast a little with other indicators, which suggested that growth in the second quarter was more muted.

Still, the trend is certainly in the right direction and there are signs of improvements in consumer spending and, perhaps, the start of a recovery in exports.

The remaining weak spot is capital investment spending, which was down 5.7 per cent in the second quarter compared to the same period last year and would have fallen further but for the jump in house building. Investment by business in machinery and equipment fell by a hefty 12 per cent.

Another positive indicator is a new seasonally adjusted series produced by the Central Statistics Office. This showed that the level of GNP in the second quarter was 2.4 per cent above what is was in the first quarter.

These figures need to be treated with caution, as it would be affected by the timing of profit repatriations, but the quarterly rate is the strongest since the end of 1999 and is driven by improvements in most areas of the economies. Particularly notable is a 3.9 per cent quarterly pick-up in industry.

It would be pushing it a bit too far to expect the economy to now clip along at 2 per cent plus each quarter, returning us to boom era growth rates. However, if the figures hold up, there is a prospect of having a decent growth rate here for the year and, more importantly, the outlook starts to look a bit better for 2004.

Naturally, Irish prospects moving into next year will be heavily influenced by whether the US can continue to lead the global economic upturn.

The encouraging factor in the US is the breadth of the recovery, which crosses consumers and business, and appears to have taken on a momentum, with inventories running down and signs of an investment pick-up and a recovery in the jobs market.

There will be some slowdown in the fourth quarter in the US as the impact of the Bush tax cuts, which boosted consumer spending, wears off. But the key question for the Republic - and for the rest of Europe - is whether the US recovery is based on sustainable foundations.

One concern is the size of the US current account balance of payments deficit and the threat that, if foreign investors become nervous, the dollar could weaken and interest rates could come under upward pressure.

In turn, this poses threats to the Republic, as a sustained dollar decline would damage exporters, particularly if sterling was to move in tandem with the US currency, as it often does. A sharply weaker dollar would also threaten to snuff out any hopes of a more general euro-zone recovery.

The other threats to growth reflect longer-term structural changes.

Strikingly, Lloyds TSB Bank yesterday announced that it was moving 1,000 call centre jobs from Newcastle to India. It is yet another indicator of how the combination of technology and globalisation is moving jobs eastwards - and not only in manufacturing.

The enlargement of the EU will intensify this, although India and China may be more potent forces in the long term.

These trends carry threats for all the industrialised countries. The question for the Republic is how our competitive position measures up against these changes, and what parts of industrial and service activity we believe can be retained and built up in the State.

Worryingly, the Global Competitiveness Report from the World Economic Forum showed yesterday that we had slipped to 30th in its rankings.

It would be wrong to pay too much heed to this indicator. The economy has survived well through the international downturn and the resilience of the jobs market is particularly remarkable.

The signs of international and domestic recovery will improve confidence and - with any luck - investment levels may recovery.

However, yesterday's mid-term review of the National Development Plan shows that much remains to be done to address the infrastructural problems facing our economy, which is crucial if we are to lay a base for productive growth into the future.