ANALYSIS:Even the vaunted export engine appears to be showing signs of running out of steam

YESTERDAY'S THIRD quarter economic growth figures, taken with Tuesday’s appalling jobs numbers for the same period, point to an economy that is nowhere near returning to growth. All the usual warnings about the volatility of the economic growth data do not lessen the awfulness of the news.

Given the deterioration in the international environment in the final quarter of the year and continued weakness in the domestic economy, according to more timely indicators, there is a real concern that the economy is slipping back into recession, if it has not done so already.

If GDP merely holds steady in the final quarter of the year, the full-year rate of expansion will be 0.8 per cent below the current expectations of both the Government and the European Commission.

Much of the decline in the domestic economy in Q3 was accounted for by the near-evaporation of investment in buildings, machinery and the like. Not only did spending on investment fall massively (again), it was lower than in any quarter since records began in 1997.

On Tuesday, new figures showed that total employment in the economy contracted by 1.1 per cent in the third quarter. It was therefore little surprise to learn yesterday that consumer spending fell by a similar amount.

Government spending contracted by the same amount. Again, unsurprising, given ongoing austerity.

Even the vaunted export engine appears to be running out of steam. Yet again, this did not cause gasps of incredulity given how weak economic growth was in the July-September period in major export markets.

There were only three positives from the figures, only one of which was particularly significant. The first, and potentially significant news, related to foreign direct investment.

The sort of corporate FDI that accounts for so much employment and exports registered a second consecutive quarter in strongly positive territory.

As Chart 4 shows, this followed heavy disinvestment in the previous two quarters as confidence in the Irish economy drained away late last year, ultimately culminating in the State being bailed out.

These figures give reason to hope that whatever the reputational damage sustained by being bailed out, its impact on foreign investment may not last.

The second positive was the continued expansion of output in the agriculture sector. But as the sector accounts for a proportion of the economy that is in low single digits, it has very limited potential to drag the rest of the economy along. Moreover, Tuesday’s figures on jobs showed that employment in the sector fell, despite the big increase in output revealed in yesterdays numbers.

The final piece of partial good news was the surplus on the balance of international payments in Q3. But again, there is a caveat. The surplus was smaller than might have been expected. For the first nine months of the year, the cumulative surplus was actually lower than in the same period in 2010, despite almost all forecasters, including the bailout troika, expecting an expanding surplus. For the full-year 2011 surplus to be larger than in 2010, the surplus in the fourth quarter will have to be the largest on record bar one.