The economy grew by 2.9 per cent in the first quarter of this year after plunging to near-negative growth at end-2001, according to figures released yesterday by the Central Statistics Office (CSO).
The limited year-on-year pick-up in gross domestic product (GDP), which came after three consecutive quarters of declining growth, was largely driven by expansion in exports. Growth in gross national product (GNP) meanwhile slowed to 1.6 per cent over the quarter, down from 3.8 per cent at the end of 2001.
The Quarterly National Accounts show that exports grew by 8.3 per cent in the review period, recovering from a decline of 1.3 per cent in the final quarter of 2001.
Pharmaceutical and chemical exports - the so-called "viagra effect" - are thought to have provided the major stimulus in this expansion, which was balanced against a 5.7 per cent expansion in imports.
Mr Austin Hughes, chief economist with IIB Bank, has estimated that pharmaceuticals could have contributed as much as 2 per cent to GDP and 0.5 per cent to GNP, thus reducing both to between 1 and 1.5 per cent.
Also tempering the overall growth was a sustained downward trend in consumer spending, where year-on-year growth slowed to 3.6 per cent in the first quarter, the lowest growth recorded since measurement of the indicator began in 1998.
This figure was down from 5.2 per cent at the end of last year, and was significantly lower than the double-digit growth seen at the height of the economic boom in 2000, thus giving rise to doubts about the confidence of consumers and the effects this could have in the wider economy.
"This probably feels like a recession to most businesses," said Mr Hughes, who is concerned that commercial enterprises could be prompted to rein in spending to a greater extent than might be appropriate. He pointed to a year-on-year contraction of 5.1 per cent in capital expenditure over the quarter, comparing it to a 5.3 per cent growth in Government spending on goods and services.
Mr Hughes said this could be "a statistical representation of emerging imbalances in the economy", adding that it was hard to imagine how such a trend could be sustained as tax revenues continue to fall.
On the basis of yesterday's figures, Mr Hughes has revised his GDP growth rate for the year upwards from 3.5 per cent to 3.8 per cent, but has brought GNP forecasts down from 3.25 per cent to 3 per cent.
Dr Dan McLaughlin has maintained a forecast of 4 per cent growth for the year, acknowledging the risks in this scenario, such as stagnation in the US economy and sustained low confidence among global consumers.
Dr McLaughlin believes sluggish consumer spending will, over the balance of the year, be offset by export-led growth if the global economic recovery maintains pace."There's some sort of recovery underway," said Dr McLaughlin.
Mr Alan McQuaid, chief economist with Bloxham Stockbrokers, said the accounts had shown the dependence of the Republic's economy on US multinationals, again arguing that growth would have been almost flat without the pharmaceutical impetus. "If the US holds, we'll be OK," said Mr McQuaid, who is predicting annual GDP growth of 4 per cent.
