In surprise, bailed-out Ireland economy grew 1.6% in 2nd quarter

Reporting from London —  Amid tanking stocks, fear of a Greek default and the risk of another global recession, a small beacon of hope shone from a quiet corner of Europe on Thursday: Bailed-out Ireland is showing promising signs of a comeback.

The Irish economy grew by a stronger-than-expected 1.6% in the second quarter this year, easily surpassing European heavyweights such as Germany and France. The news fueled hope that a modest recovery is underway after three painful years of economic contraction.

It was the second straight quarter of growth for the Irish economy, which despite the real estate crash that killed the so-called Celtic Tiger continues to be a magnet for dynamic multinational companies such as Microsoft and Google.

The figures released by Ireland’s Central Statistics Office reinforced the view of many experts that, of the three Eurozone countries forced to seek international rescue loans, only the Emerald Isle enjoys the right conditions at the moment for a return to economic health.

Like Greece and Portugal, Ireland has had to endure several rounds of brutal austerity measures to bring down a runaway public budget deficit. But unlike those two other bailout recipients, Ireland boasts an open economy powered by exports, foreign investment and an educated, English-speaking workforce.

“International investors are looking at Ireland, and they’re recognizing that in the longer-term outlook, we’re in a better position than most to grow,” said Alan McQuaid, chief economist for the brokerage firm Bloxham in Dublin, the capital. “Only Estonia in the 17 Eurozone countries performed better than us. We have made serious inroads in getting back to where we want to be.”

Both agricultural and industrial output were up compared with the same period last year, and a program to scrap old cars helped boost domestic demand.

But Ireland is by no means out of danger. The same factors that bolstered growth in the first half of the year — a reliance on exports and an openness to the global economy — make it highly vulnerable to external shocks.

With the economic outlook worsening in Ireland’s biggest trading partners, the United States and the European Union, analysts warn that figures for the second half of 2011 are likely to drop off.

And the euro debt crisis continues to promote uncertainty in the region. All eyes remain on Greece, where the government this week announced yet more spending cuts, tax increases and layoffs. The measures are aimed at wrestling the country’s budget into shape and qualifying for the next batch of rescue loans, even though many economists believe they will choke off growth and mire Athens further in a debt trap.

Amid protests and strikes over Greece’s financial plight, Prime Minister George Papandreou said Thursday that the new cost-cutting plan was vital for his country to get its books in order and stave off a chaotic default.

“The other path is bankruptcy, which would have heavy consequences for every household,” Papandreou said.

A default by Greece would also raise hackles in Ireland, where some Irish would no doubt wonder why their country shouldn’t also default and have its debts reduced rather than stick to the tough terms of its $113-billion bailout.

In spite of the pain, the Irish economy is forecast to grow this year by up to 1%.

“We’ve had three years of contractions. Even a small positive number this year would be very, very encouraging,” McQuaid said. “It’s a big step.”

henry.chu@latimes.com