By: Dr. Mike Campbell

Ireland has avoided a return to recession by posting a 1.3% expansion of the economy for the first quarter of 2011. The economy contracted by 1.4% in the final quarter of 2010 and the technical definition of a recession is two consecutive quarters of contraction. The Republic of Ireland had to accept an EU/IMF bailout in Q4 2010 to support the Euro and avoid any danger that it might have defaulted on its debts. The financial crisis in Ireland was triggered by the banking sector’s financing of a development bubble in property. When the property bubble burst, the banks were left with large defaults on loans for property projects worth just a fraction of their book price. The government had no choice but to bail the banks out.

The return to growth in the Irish economy has been export led. Eire has exported goods to the value of 20.6% more than in the comparable quarter in 2010. Domestic demand remains relatively weak and, in fact, was down by 3.1% on the comparable period for last year. Unsurprisingly, the construction sector is still suffering and has seen a 19% decline over the Q1 2010 figure this year.

The export drive has been led by foreign multinationals which see tax advantages to basing themselves in the Republic. If this component is stripped from the figures, then the economy would have seen a 4.3% contraction. On the positive side of the balance sheet, the Irish agricultural sector was the only truly home grown sector to see real growth in Q1 (pardon the pun), but then the philosophy of the Celtic Tiger economy was to make the country a place where multinationals could feel at home. It is a strategy that has served the Republic well.