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Global dip a threat to our recovery

The second-quarter economic growth statistics, published by the CSO yesterday, represent the best piece of news about the Irish economy in a long time. After almost four years of contraction, it is finally growing once again.

While quarterly figures are volatile and subject to later revision, the worst does seem to be behind us.

The latest figures, which cover the period from April to June of this year, follow on from the economic growth recorded in the first quarter of 2011. This marks the first time that the Irish economy has recorded two consecutive quarters of growth since the third quarter of 2006.

Even more encouraging is that economic growth isn't confined to the multinational enclave but has spread to the domestic economy.

The CSO figures record that the Irish economy, as measured by GDP, which includes repatriated multinational profits, grew by 1.6pc in the second quarter, while GNP, which excludes multinational profits and is a better barometer of how the domestic economy is performing, grew by 1.1pc.

On an annualised basis, the CSO now estimates that Irish GDP grew by 2.3pc and GNP by 1.1pc in the second quarter. While this is a pale shadow of the economic growth rates recorded during the Celtic Tiger years, it does mean that, after bouncing along the bottom for several quarters, the Irish economy is growing once again.

This will have major implications for the shape of next December's Budget. Stronger economic growth, if sustained, will boost tax revenues and reduce the need for further tax increases.

That's the good news.

The bad news is that Ireland is not immune from the continuing global economic uncertainty.

If, as at least seems possible, we are on the cusp of a double-dip recession, then overseas demand for Irish exports will be reduced. This in turn will reduce the rate at which the export-dependent Irish economy can grow.

Indeed there are already signs that the global economic slowdown is having an impact on Ireland. In another set of economic figures published yesterday, the CSO estimated that Irish exports of goods and services grew by just 1pc in the second quarter. If this reduction in export growth continues for more than a very short period Irish economic growth, and the related growth in tax revenues, will slow.

However, it's an ill wind that blows no good. One welcome consequence of the recent turmoil in the world's financial markets has been a long overdue fall in the value of the euro.

It now trades at just under $1.35, down from $1.45 less than four weeks ago.

With most commodities still priced in dollars and the vast majority of multinationals with Irish operations being US-owned, this fall in the value of the euro is very good news for Irish exporters, both indigenous and multinational.

Irish Independent