ANALYSIS:The domestic economy continues to slide as exports surge, writes DAN O'BRIEN
A RETURN to economic growth is essential if Ireland is to regain its sovereignty. Good news, then, that figures published yesterday by the State’s statisticians showed the economy grew by both most commonly used measures – gross domestic product (GDP) and gross national product (GNP) – in the third quarter of 2010. It is the first time since 2007 that these measures have gone in the right direction in the same three-month period.
The economy’s bounce-back was powered by a second consecutive quarter in which exports reached record highs. This happened thanks to solid foreign demand and cost cutting at home which helps price made-in-Ireland goods and services back into world markets.
Sales of goods and services to foreigners exceeded €40 billion in the third quarter alone, according to yesterday’s numbers. Services exports in particular continue to rocket. Since troughing during the depths of the global recession at the beginning of last year, quarterly sales of services abroad have surged by more than 20 per cent in 21 months.
This is the path to salvation.
Separate figures on the economy’s payments to and from the rest of the world, which statisticians also published yesterday, showed that we are earning more from foreigners than paying out to them. The July-September period of 2010 was only the second time since 2003 that Ireland ran a quarterly “current account” payments surplus. The State may be bust but a much shrunken economy is regaining its balance.
There, alas, the good news ends and the gloom begins.
While the export side of the economy surges ahead, the domestic economy continued to slide in the third quarter.
Spending by consumers slipped back yet again as jobs continued to disappear, those still earning had their wages squeezed, the paying down of debt continued apace and many squirrelled away cash rather than splashed out.
Spending by the Government fell by even more than that of consumers. In real terms, public spending is down one-tenth since its peak in 2008 when the Government snapped out of its stupor and realised it had to slam on the brakes.
Spending on investment goods – including homes, business premises, roads, plant, machinery and planes – continues to crash. Businesses are understandably loath to invest given so much uncertainty, and even when they feel they can add to capacity they are constrained by funding problems as broken banks won’t or can’t extend lines of credit. The building industry is now a speck of its former self, and continues to shrink. It is in a freefall without apparent bottom.
Yesterday’s news on the economy was mixed. What does it mean for prospects of recovery and escape from the clutches of the overseers from Brussels, Frankfurt and Washington?
While the overall GDP figure was good, it was not good enough to put the economy on target to expand this year by as much as the Government predicted when it published its four-year plan. In those projections, it hoped that the economy would inch forward in 2010 – its GDP target for the full year was a very modest +0.3 per cent. Yesterday’s third-quarter figures were not strong enough to give a good chance of achieving that target. The rate of expansion in the fourth quarter will have to be four times more rapid than that of the third to meet it.
But there is still hope. Indicators from the country’s most important export markets – Britain, the euro zone and the US – have been solid of late, despite the deepening sovereign debt crisis. The consensus among forecasters is for rates of economic growth in those markets to be little different from 2010. If this happens, Irish exporters will continue to make hay in the new year.
Domestically, indicators for the first two months of the fourth quarter – October and November – give cause to believe that the economy may have crawled back up a little, despite chronic uncertainty. It’s not over yet.
Dan O’Brien is Economics Editor