THE IRISH economy may have grown in the first quarter of the year, and could be on track for 1 per cent growth in 2010, according to Bank of Ireland.

The bank’s quarterly economic outlook said new data challenged the consensus view that although the economy will return to growth in the second half of the year it would not be enough to offset a decline in the first half of the year.

It highlighted that industrial production rose in the first two months of the year, and retail sales also increased, returning to positive annual growth in February as the car scrappage scheme boosted figures.

“The implication, in the absence of significant data revisions, is that the economy grew in the first quarter, and substantially so, which, if true, makes a positive GDP reading for the full year much more likely, and we retain our 1 per cent growth forecast,” Dr Dan McLaughlin said in the report.

Irish exports are expected to drive recovery in the economy, it said, with a rise expected in 2010 and a return to growth in Ireland’s main markets. However, capital spending is expected to fall again, particularly in construction.

While employment and wages are expected to fall further, the bank said disposable income would be cushioned by falling prices. Average inflation for 2010 is expected to remain in negative territory, at about 1.2 per cent.

Unemployment, meanwhile, is predicted to be an average of 13.4 per cent for the year.