The recession is not over

The Central Statistics Office (CSO) has released figures that indicate the Republic of Ireland’s economy has pulled out of recession. The CSO figures show Gross Domestic Product (GDP) grew by under half of one per cent in the third quarter of the year. The technical definition of a recession is two consecutive quarters of GDP contraction.

The latest Quarterly National Accounts, published this morning, indicate that on a seasonally adjusted basis there was a 0.3 per cent increase in (GDP) from July through to September.

The CSO figures, however, do not really indicate that the recession is over. While no-one is cheering just yet, many commentators are indicating that the figures do show a tentative step in the direction of growth or at least a stabilisation of the economy. Unfortunately this is not correct.

While GDP did rise – just about – Gross National Product (GNP) fell by 1.4 per cent. Unlike GDP, GNP does not include profits that have been repatriated by foreign-owned companies.

Ireland’s ‘exit’ from recession has been driven largely by a temporary rise consumer spending. However, year-on-year consumer spending is still down by 7.3 per cent. Moreover, consumer spending alone cannot provide the basis for a real economic recovery – the ‘great recession’ was itself in part caused by cheap credit masking years of industrial decline. Industrial decline is a marked problem in the Irish economy: capital investment declined by 35 per cent compared with the same period last year and industrial output fell by 9.6 per cent. Construction output alone fell by 34.4 per cent over the same period.

In addition, the CSO figures show the Irish economy as a whole is still significantly weaker than it was a year ago. On an annual basis, GDP fell by 7.4 per cent in the year to the end of October, compared to a 7.9 per cent decline in the preceding quarter while GNP is down by 11.3 per cent annually.