Whoever said that the early bird catches the worm couldn’t have been more right.
In a country hit with a failed housing market and bank bailouts, the recovery could imply the beginning of the end of the financial crisis in Europe.
“What this suggests is that the impact of the banking crisis in Ireland is slowly starting to lift,” said Jacob Funk Kirkegaard, a research fellow at the Peter G. Peterson Institute for International Economics in Washington, D.C. “That Ireland is now starting to grow again, overall, suggests to me that the bank’s problems in Europe are also likely to be contained.”
In 2008, the Western European island was the first eurozone country to fall into recession. Its GDP fell more than 14 percent in the last two years. Fortunately, a boost in net exports in the first quarter drove growth positive.
However, not all the news is rosy.
“The decline has been so large that we would expect to see a relative strong cyclical swing back,” Kirkegaard said. “I think it’s also very clear that exports were a major part of it.”
Ireland’s economy is unique because of the number of multinational companies doing business there, according to Kirkegaard. While the GDP powered forward, Ireland’s gross national product, which excludes profits from these multinationals, declined 0.5 percent during the first quarter, after falling 2 percent in the fourth quarter of last year. It’s expected to swing to positive growth in the second quarter.
“Ultimately, this is a leading indicator. The decline in the euro suggests that Irish exports are going to continue to rise. That’s going to be good for GDP in the next quarter. I expect gross national product to [also] start increasing in the next quarter,” Kirkegaard said.
On top of the GDP release, Ireland’s Central Statistics Office also posted Ireland’s unemployment rate, a 16-year high of 13.4 percent in June, up 0.2 percentage points from May, a sign that full economic recovery may still be yet to come.
On the macro scale, Europe’s debt crisis has continued plaguing the continent, especially in countries such as Greece, Portugal and Spain. The euro hit a four-year low against the dollar in June, falling below $1.19 for the first time since March 2006. The euro has since rebounded slightly and at midday Thursday was trading at $1.24.
Although the news out of Ireland could mean one step closer to solving troubles, some analysts are worried about the future.
“There’s a lot of debt, and [getting rid of] it takes a long time,” said Donald Jacobs, dean emeritus in the finance department and professor of banking at Northwestern University’s Kellogg School of Management. “There’s no silver bullet.”